1. Characteristics of competitive markets The model of competitive markets relie
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1. Characteristics of competitive markets The model of competitive markets relies on these three core assumptions: 1·There must be many buyers and sellers-a few players can't dominate the market. 2. Firms must produce an identical product-buyers must regard all sellers' products as equivalent. 3. Firms and resources must be fully mobile, allowing for free entry into and exit from the industry. The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behaviour, assume for this problem that a market cannot maintain competition in the long run without free entry Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not. Scenarido Several stores in the mall sell hooded sweatshirts. Each store's sweatshirts reflect the style of that particular store. Additionally, some stores use higher-quality cotton than others, which is reflected in the apparel's prices. The government has granted a patent to a pharmaceutical company for an experimental Competitive? Yes, meets all assumptions No, no free entry No, not many sellers No, not an identical product In a small town, there are two providers of broadband Internet access: a cable company and the phone company. The Internet access offered by both providers is of the same speed Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care who manufactures their socks.Explanation / Answer
Scenario 1 - No, not an identical product (Sweatshirts sold are having different quality)
Scenario 2 - No, no free entry (Patent given by the government creates an entry barrier for the potential entrants)
Scenario 3 - No, not many sellers (there are only two providers of broadband service)
Scenario 4 - Yes, meets all assumptions.
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