The model of competitive markets relies on these three core assumptions: 1. Ther

Question

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 mist produce an identical product-buyers must regard all sellers' products as equivalent. 3. Firms ane resources must be fully mobile, allowing for free entry into and exit from the industry. The two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-tacking behavior, 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 for why or why not.

Explanation / Answer

(a) Scenario 1 - Not competitive

There is only 1 seller in the market (holding the copyright), and it is a monopoly.

(b) Scenario 2 - Not competitive

Number of sellers is only two, and they dominate the market.

(c) Scenario 3 - Not competitive

Though there are many sellers, they do not sell identical goods - the sweatshirts are differentiated with different prices.

(d) Scenario 1 - Competitive

Consumers perceive all socks as identical, so the market is competitive.

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