The Perfectly Competitive Market model assumes that firms can easily enter and leave the market (industry),...

The Perfectly Competitive Market model assumes that firms can easily enter and leave the market (industry), and that each firm is a “price-taker”. Assume that you and your group members live in the same town(city),and are planning to grow tomatoes in your backyards during the summer. You are planning to sell the tomatoes in a farmers’ market in your hometown (city).

Explain whether or not it will be easy for you to enter and (later) leave this market.

Do you think that you will influence the market price for tomatoes in this market or not?

In other words, will you be “price-takers” or not?

Solutions

Expert Solution

If group members live in the same town and are planning to grow tomatoes in backyards during the summer .And sell the tomatoes in a farmer's market in city.

Now, it will be easy for one person to enter or leave this market because he is just a small part of the market and there are many sellers who are growing the same product i.e tomatoes .Therefore, entering in the market doesn't create any problems and also leaving the market because he has the small share and all producers produce the same product which are perfect substitutes .

No, he cannot be to influence the market price for tomatoes in this market because all producers are producing the same product , and if one member want to increase the price then he will lose all of its sales because there are other members who are selling the same product at low price than you .Hence , if all the members are producing the same product i.e tomatoes then this market is represented by perfect competition . And one member will not be able to influence the price of tomatoes because there are many sellers .Hence, they are price takers .

Rahul Sunny answered 1 year ago

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