Question

Make a discussion ,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

Asprin: Perfectly Competitive (as the product is homogeneous, produced by large number of sellers, market has large number of buyers, there is free entry and exit of firms in the industry)

Lady Gaga concerts: Not perfectly competitive (as the product is highly differentiated with no close substitute in the market).

SUVs: Not perfectly competitive (as different automobile companies offer differentiated SUVs with different features. The good is not homogeneous in nature)

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Own example: Market for agriculture (fruits and vegetables)

This market is a perfectly competitive market as it consists of a large number of buyers and sellers selling same homogeneous products. There is free entry and exit of firms in the market.

In these markets, due to long run free entry and exit of firms in the market, the long run profits are always zero

All short run profits or losses are adjusted for in the long run by firms entering in case of profits and exiting in case of losses.