Question

Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.
Scenario:

1-There are hundreds of colleges that serve millions of students each year. The colleges vary by location, size, and educational quality, which allows students with diverse preferences to find schools that match their needs.
2-The government has granted the U.S. Postal Service the exclusive right to deliver mail.
3-A few major airlines account for the vast majority of air travel. Consumers view all airlines as providing basically the same service and will shop around for the lowest price.
4-There are dozens of pasta producers that sell pasta to hundreds of Italian restaurants nationwide. The restaurant owners buy from the cheapest pasta producer available to them.

a. Competitive
b. Yes, meets all assumptions
c. No, no free entry
d. No, not many sellers
e. No, not a homogeneous product

Answer 1

Answer:

1. e. No, not a homogeneous product

2. c. No, no free entry

3. d. No, not many sellers

4. b. Yes, meets all assumptions

Explanation:

In this example, the pasta businesses could be considered to be in a competitive market, as there are dozens of them selling pasta to hundreds of Italian restaurants. However, the rest of these options are not competitive. The college business is not homogeneous because people consider colleges to be all quite different. Moreover, the postal service has the exclusive right to deliver mail, which means there is no free entry. Finally, the airlines do not represent a competitive environment because there are only a few airlines.