Question

Kindly discuss the following:

There are many distinct characteristics that classify a market as Perfectly Competitive including:

• Very large number of firms
• Homogenous products
• Entry and exit into the market free of barriers
• Perfect Information
• Individual firms are price takers
• Long run economic profits will be zero

Instructions

Given these characteristics of a perfectly competitive market, select one of the characteristics listed. In your post:

• Fully explain what that characteristic means and what its importance is to classifying a market as perfectly competitive.
  • If you have noticed this characteristic in a certain market, explain where you have seen it before or provide your own example.
• Would you see the characteristic you are discussing in any of the other three market structures - monopolistic competition, oligopoly or monopoly?
  • Why or why not?

Answer 1

Homogeneous products is a characteristic of perfect competition. A perfectly competitive firm is a price taker and will be able to influence the price. If there is slight differentiation in the product than the market becomes a monopolistic competitive market where advertisement plays a key role.

Homogeneous products are found in agricultural products like carrots, beans. Products are identical, and, agricultural market is perfectly competitive since it has all the characteristics of a perfectly competitive market.

We cannot see in any monopolistic market because in monopolistic markets products are slightly differentiated. In monopoly, there is only one seller in the market. The product is unique. It has no close substitution.

An oligopoly market has a small number of larger firms that produce similar but slightly different products. Examples are auto manufacturers, cell phone service providers.