Answered

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Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.

a. 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.
b. 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.
c. Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care who manufactures their socks.
d. 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.

Sagot :

ogorwyne

Answer:

1. not a competitive market

2. not a competitive market

3. competitive market

4. not a perfectly competitive market

Explanation:

To answer this question, i will first start by explaining what a competitive market is and the assumption of a perfectly competitive market as well

A competitive market is a market that has many producers and buyers of a particular product. The producers are usually in a competition to meet up with the needs of the buyers.

some assumptions of the market:

  • large sellers/producers
  • identical or homogenous goods
  • free entry
  • no discrimination
  • perfect knowledge

a. in this question this is not a competitive market. the reason is simple. It says that there are only two providers of internet. So there are no enough producers or sellers

b. The government has limited entry into this market by giving patent to only one pharmaceutical company.

c. yes this market is competitive since there are many producers of the product and the consumers regard the products as identical or homogenous. this meets with all of the assumptions of a perfectly competitive market.

d. the product here is not homogenous or identical as this is not a perfectly competitive market since buyers would prefer to buy the coffee that tastes better and leave that of the competitors

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