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MicroChapter6mc - 6 Perfectly Competitive Markets Multiple...

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6. Perfectly Competitive Markets Multiple Choice 1. Which of the following is NOT a characteristic of a perfectly competitive market? a) All firms have equal access to technology in the long run. b) All consumers have perfect information about prices. c) All firms must be identical. d) Each buyer's purchases must have an imperceptible effect on market price. Ans: c Response: A perfectly competitive market has four characteristics : (1) Each buyer's purchases are so small that he/she has an imperceptible effect on market price. Further, each seller's sales are so small that he/she has an imperceptible effect on market price. When both buyers and sellers are small in this way, we call the industry fragmented . (2) Firms produce undifferentiated products in the sense that consumers perceive the products to be identical. In other words, the products may be physically the same or, if they are not the same, the differences do not in any way affect consumers' demand (or valuation) of the product. (3) Consumers have perfect information about the prices all sellers in the market charge. (4) Finally, all firms (both current industry participants and potential new entrants to the industry) have equal access to resources (such as technology and raw materials). The first three assumptions are necessary for the market to be perfectly competitive in the short run. The fourth assumption must be added to define perfect competition in the long run. 2. Which of the following statements could be true for a perfectly competitive industry?
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