ECON205 - Homework07 - S09

ECON205 - Homework07 - S09 - cfw_)~. /' Characte,istlcs of...

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{)~~. Characte,istlcs of competitive ma,kets /' 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 market. * Firms must produce a standardized product-buyers must regard all sellers' products as equivalent. * Firms and resources must be fully mobile, allowing free entry and exit. 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. For each scenario, explain why or why not. I Not a standardized product "I Why or Why Not? I Not a standardized product "I Scenario Several stores in the mall sell hoodies. Each store's hoodies reflect the style of that particular store. Additionally, some stores use higher-quality cotton than others, which is reflected in their price. Dozens of companies produce plain white socks. Consumers regard plain white socks as identical, and don't care about who sells them their socks. In a small town, there are four providers of broadband Internet access: a cable company, the phone company, and two satellite companies. The Internet access offered by all four providers is of the same speed. Scholastic Inc. owns the U.S. copyright to the Harry Potter books. It is the only company with the legal right to publish books in the series in the United States. Competitive? I No "I I Yes "I I No "I I No "I I Meets all assumptions I Only a few sellers "I Close A Explanation: -------- -_._-- ---------------------------------- The sock market is the only one of these options that is a perfectly competitive market. Because Scholastic Inc. is the only legal provider of Harry Potter books, there isn't free entry into that market. (Since there is only one seller and the good is unique, the answers "only a few sellers" or "not a standardized product" would also be accepted.) Because a few firms dominate the broadband Internet market, they are not price takers. Finally, consumers regard the products offered by various apparel stores as different, so the hoodie market is not characterized by a standardized product. Scores: 0-- Average: 0/8 oJ) (c 0 (j J' ~p la nc II Igh" esP! e"
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Cardboard Inc. is one of over a hundred perfectly competitive firms that produce extra-large cardboard boxes for moving. The graph below shows the market demand and supply curves. The equilibrium market price is $25 per extra-large cardboard box. PRICE (Dollars per extra-large box] 50 45 5 40 35 30 5 10 15 20 o 25 - - - - - - - - - -, I I I I I I J J I o 1 2 3 4 5 6 7 8 9 10 QUANTITY [Millions of extra-large boxes per day! On the graph below, use the red line (cross symbols) to plot the demand curve facing Cardboard Inc. for extra-large
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This note was uploaded on 04/07/2011 for the course ECON 205 taught by Professor Williams,w during the Spring '08 term at Sonoma.

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ECON205 - Homework07 - S09 - cfw_)~. /' Characte,istlcs of...

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