Multiple Choice
Which of the following is NOT a characteristic of the structure of perfectly competitive markets?
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11. Perfect Competition
Characteristics of Perfect Competition
Multiple Choice
Which situation gives the best example of a price-taker as it pertains to perfect competition?
A
A single gas station in a remote town adjusting prices based on local demand.
B
A smartphone manufacturer launching a new model with unique features.
C
A local bakery setting its own prices for specialty cakes.
D
A wheat farmer selling their crop in a large market where many identical farmers exist.
Verified step by step guidance1
Understand the concept of a price-taker: In perfect competition, a price-taker is a firm or individual who cannot influence the market price and must accept the prevailing market price for their product.
Identify the characteristics of perfect competition: Many sellers, identical products, and free entry and exit in the market. Because products are identical, no single seller can influence the price.
Analyze each option to see if it fits the price-taker criteria: For example, a single gas station or a local bakery can set their own prices because their products or services are differentiated or localized, so they are not price-takers.
Recognize that a smartphone manufacturer launching a new model with unique features is not a price-taker because the product is differentiated and can influence its price.
Conclude that a wheat farmer selling in a large market with many identical farmers is a classic example of a price-taker, as the farmer sells a homogeneous product and cannot influence the market price.
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