3. Grocery stores and gas stations in a large city would appear to be examples o

Question

3. Grocery stores and gas stations in a large city would appear to be examples of competitive markets. There are numerous, relatively small sellers, each seller is a price taker and the products are quite similar.

a. Is is possible these markets are perfectly competitive? How could we argue that the firms face a demand curve that is not perfectly elastic? Use the definitions and characteristics of the differenct market structures to justify your reasoning.

b. How profitable do you expect grocery stores and gas stations to be in the long run?

Explanation / Answer

3 (a)

It is true that grocery stores are perfectly competitive in the market. There are large number of such stroes. The price competition is high that it is trying to gain revenues in such a oilgopoly market. The firm faces demand curve which is not perfectly elastic because of large number of firms offering the same product in same prices. The demand is same every where but the supply has to meet the demand. The monopoly of a firm in the market gives revenues to one firm who rules the market. The oligopoly market gives a high competition to the firm owners present in large number whose demand curve is not perfectly elastic.

3 (b)

The grocery stores and gas stations earns revenues on a long run because the demand of both is there inthe market as people require the outputs from both on daily basis. The food items and daily items are availble in grocery stores. The use of vehicle is required daily for commuters so need of gas stations is compulsory.

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