Question

For each of the following, is the industry perfectly competitive? Referring to market share, standardization of the product, and/or free entry and exit, explain your answers in detail.

1. Aspirin
2. Lady Gaga Concerts
3. SUVs

Also, come up with your own example of a competitive market. What would you expect to happen to profits in this market over time (short-run versus long-run outcomes in perfect competition) and why? Use this industry as an example to explain the competitive process in detail.

Answer 1

1. Aspirin: Yes, the market is close to perfect competition because the sproduct sold by all sellers is homogeneous in nature and also there are infifnite number od sellers of the product and the product is sold almost at the identical price by different sellers. Thus, the product depicts perfeclty competitive market.

2. Lady Gaga concerts:Yes,it also depicts the perfeclty competitive market because the concerts are identical in all countries with almost similar price of the tickets in each country. Thus, it denotes close to perfeclty competitive market.

3.SUVs: This denotes monopolistically competitive market and not perfectly competitive market because the product is sold is heterogeneous and not perfectly identical because features are different in different brands of SUVs. Thus, the market is monopolistically competitive.

Wheat market is also good exampe of perfeclty competitive market where sellers are selling identical products at similar prices and there are infinite number of sellers and buyers of the product in the market.Overtime , the firms in this market are only earning normal profits because in long run price charged is equal to minimum point of long run average cost curve of the firm.