Microeconomics (6th Edition)
Microeconomics (6th Edition)
6th Edition
ISBN: 9780134106243
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
Question
Book Icon
Chapter 12, Problem 12.1.1RQ
To determine

Three conditions for a market to be perfectively competitive.

Expert Solution & Answer
Check Mark

Explanation of Solution

The market is a structure where there are large number of buyers and sellers who sell and buy goods and services between themselves. The market competition is the market structure where there is competition among the large number of sellers in the market in order to satisfy the needs of the large number of consumers. There are three conditions that must be satisfied in order to become the market competitive. They are as follows:

  1. 1. There must be a large number of sellers and buyers in the market: The market will have a large number of producers producing the commodities in order to satisfy the needs of the large number of consumers.
  2. 2. The commodities in the market will be identical: There will be a large number of buyers and sellers in the market who compete with each other to satisfy the needs of the consumers. Thus, in order to have competition among the sellers, the commodities must be identical to each other.
  3. 3. There must be no barriers to entry and exit: The market will be open to all and there will be no barriers for the entry of new firm into the market as well as the exit of the existing firm from the market. When there is profit, new firms will enter and when there is loss, existing firms will shut down their production and exit the market.
Economics Concept Introduction

Concept introduction:

Market competition: A competitive market is one in which there is a large number of producers who compete with each other to satisfy the needs of the large number of consumers.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Explain and evaluate the impact of legislation on the U.S. criminal justice system, specifically on the prison population and its impact on poverty and the U.S. economy. Include significant elements and limitations such as the War on Drugs and the First Step Act.
Given the following petroleum tax details, calculate the marginal tax rate and explain its significance: Total Revenue: $500 million Cost of Operations: $200 million Tax Rate: 40% Additional Royalty: 5% Profit-Based Tax: 10%
Use a game tree to illustrate why an aircraft manufacturer may price below the current marginal cost in the short run if it has a steep learning curve.   ​(Hint​: Show that learning by doing lowers its cost in the second​ period.) Part 2 Assume for simplicity the game tree is illustrated in the figure to the right. Pricing below marginal cost reduces profits but gives the incumbent a cost advantage over potential rivals. What is the subgame perfect Nash​ equilibrium?
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Microeconomics
Economics
ISBN:9781337617406
Author:Roger A. Arnold
Publisher:Cengage Learning
Text book image
Economics Today and Tomorrow, Student Edition
Economics
ISBN:9780078747663
Author:McGraw-Hill
Publisher:Glencoe/McGraw-Hill School Pub Co
Text book image
Principles of Microeconomics
Economics
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning