Characteristics of competitive markets The model of competitive markets relies on these three core assumptions:1.There must be many buyers and sellers—a few players can't dominate the market.2.Firms must produce an identical product—buyers must regard all sellers' products as equivalent.3.Firms and resources must be fully mobile, allowing free entry into and exit from the industry. 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 competitive market, along with the correct explanation of why or why not.ScenarioCompetitive?There are hundreds of colleges that serve millions of students each year. The colleges varyby location, size, and educational quality, which enables students with diverse preferencesto find schools that match their needs.Dozens of companies produce plain white socks. Consumers regard plain white socks asidentical and don't care who manufactures their socks.The government has granted a patent to a pharmaceutical company for an experimentalAIDS drug. That company is the only firm permitted to sell the drug.A few major airlines account for the vast majority of air travel. Consumers view all airlinesas providing basically the same service and will shop around for the lowest price.

In any market such as cereal and oil market, the interplay between market demand and market supply…

Answered: Identify whether or not each of the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Characteristics of competitive markets

The model of competitive markets relies on these three core assumptions:

1.	There must be many buyers and sellers—a few players can't dominate the market.
2.	Firms must produce an identical product—buyers must regard all sellers' products as equivalent.
3.	Firms and resources must be fully mobile, allowing free entry into and exit from the industry.

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 competitive market, along with the correct explanation of why or why not.
Scenario
Competitive?
There are hundreds of colleges that serve millions of students each year. The colleges vary
by location, size, and educational quality, which enables students with diverse preferences
to find schools that match their needs.
Dozens of companies produce plain white socks. Consumers regard plain white socks as
identical and don't care who manufactures their socks.
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.
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.

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