1. Characteristics of perfect competition
The model of perfectly competitive markets relies on these three core assumptions:
There must be many buyers and sellers—a few players can't dominate the
Firms must produce a homogeneous product—buyers must regard all sellers'
products as equivalent.
Firms and resources must be fully mobile, allowing for free entry into and exit
from the industry.
Taken together, these three conditions imply that in a perfectly competitive market, all producers and
consumers are price takers.
Identify whether or not each of the following scenarios describes a perfectly competitive market, along
with the correct explanation of why or why not.
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
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.
Several stores in the mall sell hooded sweatshirts. Each store's sweatshirts
reflect the style of that particular store. Additionally, some stores use
higher-quality cotton than others, which is reflected in the apparel’s prices.
2.The perfectly competitive firm as a price taker