Question

 Aplia Homework: The Firm and the Industry under Perfect Competition

 The model of perfectly competitive markets relies on these four core assumptions:

 1. There must be numerous small firms and customers-each player's actions have no effect on price and, thus, trade associations and collusive agreements are not possible.

 2. Firms must produce a homogeneous 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.

 4. Each firm and each customer is well informed about available products and prices. Customers know whether one supplier is selling at a lower price than another.

 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 perfectly competitive market, along with the correct explanation of why or why mot.

 Perfectly Competitive?

 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.

 Scholastik Inc. owns the U.S. copyright to a popular book series. It is the only company with the legal right to publish books in the series in the United States.

 In a major metropolitan area, one chain of coffee shops has gained a large market share because customers feel its coffee tastes better than that of its competitors.

 Dozens of companies produce plain white socks. Consumers regard plain white socks as homogeneous and don't care who manufactures their socks.

Answer 1

Answer:

1. 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.

--- No, not many sellers. There are only two sellers here. Either of them can influence price in order to draw more customers. So this is not a perfectly competitive market.

2. Scholastic Inc. owns the US copyright to a popular book series. It is the only company with rights to publish books in the series in the United States.

--- No, no free entry. There is only one company that owns the copyrights. Nobody else can enter into this monopoly. It cannot be a perfect competition.

3. In a major metropolitan area, one chain of coffee shop has gained a large market share because customers feel its coffee tastes better than that of its competitors.

--- No, not a homogeneous product. This coffee chain has a differentiated product which consumers recognize as the company's. This specialized coffee cannot be substituted with other brands of coffee because customers prefer the taste of this brand. So it cannot be perfect competition.

4. Dozens of companies produce plain white socks. Customers regard plain white socks as homogeneous and don't care who manufactures their socks.

--- Yes, meets all assumptions. These companies are many in number. They sell homogeneous white socks. Customers don't recognize these socks by brand or any other mark, socks here are fungible. These are the signs of perfect competition.