1. Characteristics of competitive marketsThe model of competitive markets relies on the following four core assumptions:1. There must be many buyers and sellers, none of which is large in relation to total sales or purchases. In other words, a few playerscan't dominate the entire market.2. Each firm produces and sells a homogeneous product that is indistinguishable from all other firms' products in a given industry. Thatis, buyers must regard all sellers' products as equivalent, or identical.3. Buyers and sellers have all relevant information about prices, product quality, sources of supply, etc.4. Firms have free entry into and exit from the industry. New firms can enter the market easily, and existing firms can exit the marketeasily. There are no barriers to entry or exit.The first three assumptions imply that all consumers and firms are price takers. The final assumption is not necessary for price-taking behavior, butguarantees that a market remains competitive in the long run. Identify whether or not each of the following scenarios describes a perfectly competitive market, along with the correct explanation of why or why not.ScenarioPerfectly competitive?In a small town, there are two providers of broadband Internet access: a cable companyand a phone company. The Internet access offered by both providers is of the samespeed.In a major metropolitan area, one chain of coffee shops has gained a large market sharebecause customers feel its coffee tastes better than that of its competitorsDozens of companies produce plain white socks. Consumers regard plain white socks asstandardized and don't care who manufactures their socks.Scholastik Inc. owns the U.S. copyright to a popular book series. It is the only companywith the legal right to publish books in the series in the United States.

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Question

1. Characteristics of competitive markets
The model of competitive markets relies on the following four core assumptions:
1. There must be many buyers and sellers, none of which is large in relation to total sales or purchases. In other words, a few players
can't dominate the entire market.
2. Each firm produces and sells a homogeneous product that is indistinguishable from all other firms' products in a given industry. That
is, buyers must regard all sellers' products as equivalent, or identical.
3. Buyers and sellers have all relevant information about prices, product quality, sources of supply, etc.
4. Firms have free entry into and exit from the industry. New firms can enter the market easily, and existing firms can exit the market
easily. There are no barriers to entry or exit.
The first three assumptions imply that all consumers and firms are price takers. The final assumption is not necessary for price-taking behavior, but
guarantees that a market remains competitive in the long run.

Identify whether or not each of the following scenarios describes a perfectly competitive market, along with the correct explanation of why or why not.
Scenario
Perfectly competitive?
In a small town, there are two providers of broadband Internet access: a cable company
and a phone company. The Internet access offered by both providers is of the same
speed.
In a major metropolitan area, one chain of coffee shops has gained a large market share
because customers feel its coffee tastes better than that of its competitors
Dozens of companies produce plain white socks. Consumers regard plain white socks as
standardized and don't care who manufactures their socks.
Scholastik Inc. owns the U.S. copyright to a popular book series. It is the only company
with the legal right to publish books in the series in the United States.

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