The model of competitive markets relies on the following four core assumptions: 1. There must be...
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The model of competitive markets relies on the following four core assumptions: 1. There must be many buyers and sellers, none of which is large in relation to total sales or purchases. In other words, a few players can't dominate the entire market. 2. Each firm produces and sells a homogeneous product that is indistinguishable from all other firms' products in a given industry. That is, buyers must regard all sellers' products as equivalent, or identical. 3. Buyers and sellers have all relevant information about prices, product quality, sources of supply, etc. 4. Firms have free entry into and exit from the industry. New firms can enter the market easily, and existing firms can exit the market easily. There are no barriers to entry or exit. The first three assumptions imply that all consumers and firms are price takers. The final assumption is not necessary for price-taking behavior, but quarantees that a market remains competitive in the long run. Identify whether or not each of the following scenarios describes a perfectly competitive market, along with the correct explanation of why or why not. Perfectly competitive? Scenario The government has granted the U.S. Postal Service the exclusive right to deliver mail. There are hundreds of colleges that serve millions of students each year The colleges vary by location, size, and educational quality, which allows students with diverse preferences to find schools that match their needs. There are hundreds of high school students in need of algebra tutoring services in Philadelphia. Dozens of companies offer tutoring services, and the parents who seek out tutors view the quality of the tutoring at the different companies to be largely the same.. 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. The model of competitive markets relies on the following four core assumptions: 1. There must be many buyers and sellers, none of which is large in relation to total sales or purchases. In other words, a few players can't dominate the entire market. 2. Each firm produces and sells a homogeneous product that is indistinguishable from all other firms' products in a given industry. That is, buyers must regard all sellers' products as equivalent, or identical. 3. Buyers and sellers have all relevant information about prices, product quality, sources of supply, etc. 4. Firms have free entry into and exit from the industry. New firms can enter the market easily, and existing firms can exit the market easily. There are no barriers to entry or exit. The first three assumptions imply that all consumers and firms are price takers. The final assumption is not necessary for price-taking behavior, but quarantees that a market remains competitive in the long run. Identify whether or not each of the following scenarios describes a perfectly competitive market, along with the correct explanation of why or why not. Perfectly competitive? Scenario The government has granted the U.S. Postal Service the exclusive right to deliver mail. There are hundreds of colleges that serve millions of students each year The colleges vary by location, size, and educational quality, which allows students with diverse preferences to find schools that match their needs. There are hundreds of high school students in need of algebra tutoring services in Philadelphia. Dozens of companies offer tutoring services, and the parents who seek out tutors view the quality of the tutoring at the different companies to be largely the same.. 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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Scenario 1 No The US Postal Service has been granted an exclusive right by the government violating ... View the full answer
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