Question

1. Characteristics of competitive markets 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 homogenous 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 not Scenario Dozens of companies produce plain white socks. Consumers regard plain white socks as homogenous and don't care who manufactures their socks. Perfectly competitive? Yes, meets all assumptions No, no free entry No, not many sellers There are hundreds of colleges that serve millions of students each year The colleges vary by location, size, and educational quality, which allows students with diverse preferences to find schools that match their needs A few major airlines account for the vast majority of air travel. Consumers view all airlines as providing basically the same service and will shop around for the lowest price. The government has granted a patent to a pharmaceutical company for an experimental AIDS drug. That company is the only firm permitted to sell the drug No, not a homogenous product

Answer 1

There are hundreds of high school.. (answer: yes, meets all assumptions) The government has granted a patent to a pharmaceutical company.. (answer: no, no free entry) In a small town.. (answer: no, not many sellers) Several Stores in a mall.. (no, not an identical product)