1. Characteristics of competitive markets The competitive market model depends on the following three core assumptions: 1. There must be many buyers and sellersa few players can't dominate the market. 2. Firms must produce an identical productbuyers 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 rms are price takers. While the third is not necessary for pricetaking behaviorr 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 [5 the market competitive? v In a college town, students choose between two providers of wireless internet access. All student housing is wired for both companies, and the internet service offered by both providers is equally fast and reliable. Y The government grants a patent to a pharmaceutical company protecting an experimental cancer treatment. That company is the only pharmaceutical producer allowed to manufacture and sell the treatment. T In a large city. one chain of coffee shops controls a large market share because locals believe its coffee tastes better than that of its competitors. Identify whether or not each of the foliowing scenarios describes a competitive market, along with the correct explanation of why or why not. Scenario [5 the market competitive? v In a college town, students choose between two providers of wireless internet access. All student housing is wired for both companies, and the intemet service offered by both providers is equally fast and reliable. v The government grants a patent to a pharmaceutical company protecting an experimental cancer treatment. That company is the only pharmaceutical producer allowed to manufacture and sell the treatment. v In a large city, one chain of coffee shops controls a large market share because locals believe its coffee tastes better than that of its competitors. v Dozens of clothing manufacturers produce plain black undershirts. Consumers View plain black undershirts as identical and have no preference which company makes their undershirts. Identify whether or not each of the foiiowing scenarios describes a competitive market, eiong with the correct expianatioh of why or why not. Scenario [5 the market competitive? v In a college town, students choose between two providers of wireless internet access. All student housing is wired for both companies, and the internet service offered by both Yes. satisfies all assumptions providers is equally fast and reliable. No (no free entry) V The government grants a patent to a pharmaceutical company protecting an experimental No (not many sellers} cancer treatment. That company is the only pharmaceutical producer allowed to No [not an identical product} manufacture and sell the treatment. v In a large city, one chain of coffee shops controls a large market share because locals believe its coffee tastes better than that of its competitors. Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why or Scenario Is the market competitive? v In a college town, students choose between two providers of wireless internet access. All student housing is wired for both companies, and the intemet service offered by both providers is equally fast and reliable. v The government grants a patent to a pharmaceutical company protecting an experimental cancer treatment. That company is the only pharmaceutical producer allowed to Yes, satises all assumptions manufacture and sell the treatment. No (no free entry} v In a large city, one chain of coffee shops controls a large market share because locals No (not many sellers) believe its coffee tastes better than that of its competitors. _ _ No [not an Identical product) v Dozens of clothing manufacturers produce plain black undershirts. Consumers view plain black undershirts as identical and have no preference which company makes their undershirts. Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why nt Scenario [5 the market competitive? v In a college town, students choose between two providers of wireless internet access. All student housing is wired for both companies, and the intemet service offered by both providers is equally fast and reliable. v The government grants a patent to a pharmaceutical company protecting an experimental cancer treatment. That company is the only pharmaceutical producer allowed to manufacture and sell the treatment. V In a large city, one chain of coffee shops controls a large market share because locals believe its coffee tastes better than that of its competitors. Yes, satises all assumptions No (no free entry) V Dozens of clothing manufacturers produce plain black undershirts. Consumers View plain black undershirts as identical and have no preference which company makes their No (not many sellers} undershirts. No (not an identical product} Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why no Scenario Is the market competitive? In a college town, students choose between two providers of wireless internet access. All student housing is wired for both companies, and the internet service offered by both providers is equally fast and reliable. The government grants a patent to a pharmaceutical company protecting an experimental cancer treatment. That company is the only pharmaceutical producer allowed to Yes, satisfies all assumptions manufacture and sell the treatment. No (no free entry) In a large city, one chain of coffee shops controls a large market share because locals No (not many sellers) believe its coffee tastes better than that of its competitors. No (not an identical product) Dozens of clothing manufacturers produce plain black undershirts. Consumers view plain black undershirts as identical and have no preference which company makes their undershirts.2. The demand curve facing a competitive rm The following graph illustrates the market for extralarge moving trucks in Waco, TX, during Baylor's fall movein week. 500 450 - Supply 400 Demand 35:: ~ 300 ~ 250 ---------- \\ 0+1 1 i i i i i i 1 D1 2 3- 4 6 T 3 910 QUANTITY (Hundreds of extralarge trucks) + 200 PRICE (Dollars per extralarge truck) 150 - 100 - 50 U! Suppose that SendIt is one of over a dozen competitive firms in the Waco area that offers moving truck rentals. Based on the preceding graph showing the weekly market demand and supply curves, the price SendIt must take as given is $ Fill in the price and the total, marginal, and average revenue SendIt earns when it rents 0, 1, 2, or 3 trucks during move-in week. Quantity Price Total Revenue Marginal Revenue Average Revenue (Trucks) (Dollars per truck) (Dollars) (Dollars) (Dollars per truck) 0 0 2 3 The demand curve faced by SendIt is identical to which of its other curves? Check all that apply. O Supply curve Marginal cost curve Marginal revenue curve O Average revenue curve