The model of competitive markets relies on the following four core assumptions:

Question

The model of competitive markets relies on the following four core assumptions: 1. All firms sell identical products. 2. There many firms. In particular, there are enough firms that changes in an individual firm's output will not change the overall market price or the total quantity supplied 3. Firms have free entry into and exit from the industry. New firms can enter the market easily, and existing firms can exit the market easily. 4. Firms are price takers. Pressure from competing firms forces them to accept the prevailing price in the market.

Explanation / Answer

Ans)

No ,not many sellers

No, not an identical product

Yes,meets all assumptions

No, no free entry

In a perfectly competitive market, there are many buyers and sellers, who sell a homogenous product and there are no barriers to entry and exit.Thus the first is not competitive since it has only two firms, the second is not competitive because the product is differentiated, the fourth is not competitive since this market has a single firm.The third market is competitive because it fulfills all three requirements.

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