1. Characteristics of competitive markets The model of competitive markets relie
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Question
1. Characteristics of competitive markets
The model of competitive markets relies on these three core assumptions:
The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking 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 of why or why not.
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.Explanation / Answer
1. Yes, this is a case of Perfect Competition because the products sold are identical.
2. No, because in this case one product is considered superior by the customers. Thus, the coffee sold is not identical by all the firms.
3. No, there is only one firm that too with a copyright. Thus. it is a monopoly.
4. Yes, because the products are identical. Though the sellers are small in number but it is nowhere mentioned that entry is restricted.
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