Question

Generally, perfectly competitive industries such as paper and steel (commodities) are deemed to be ________ in profits to more differentiated industries like pharmaceuticals and cosmetics. A. Similar B. Indeterminate C. Inferior D. Superior

Answer 1

Answer:

The answer in this case would be option C. or Inferior.

Explanation:

• A perfectly competitive market structure is characterized by numerous buyers/consumers and sellers/producers pertaining to the market for any particular good or service.The product or service sold in the perfectly competitive market is customarily similar or homogeneous.
• There are no legal and administrative barriers to entry or exit for any individual firm or company in the perfectly competitive market structure eventually leading to higher level of market competition or rivalry.
• High level or market competition or rivalry hinders the market power or price making ability of the firms or companies indicating that no single or individual firm or company in the market cannot determine the market price for the concerned good or service in the market and hence,they do not have any control over the market price.
• In contrast,in relatively non-competitive markets such as monopolistic competition,characterized by differentiated or heterogeneous products or services generally experience relatively low market competition or rivalry providing respective firms or companies with relatively higher market power or control over the market price of the concerned product or service.Hence,in non-competitive markets with differentiated or heterogeneous products or services,the individual firms or companies can somehow determine the market price for the concerned product or service according to their profit maximizing intentions or behavior.
• Therefore,overall profitability of the firms or companies in non-competitive firms is relatively higher compared to competitive firms or companies mainly due to product or service differentiation and difference in market competition or rivalry and price making ability or level of market power.