Answer to Question #241965 in Microeconomics for Nana

Question

Consider the following goods and services. Which are the most likely to be produced in a perfectly competitive industry? Which are not? Explain why you made the choices you did, relating your answer to the assumptions of the model of perfect competition. Please address all of the examples below in your discussion.

1.   Coca-Cola and Pepsi

2.   Potatoes

3.   Private physicians in your local community

4.   Government bonds and corporate stocks

5.   Taxicabs in Lima, Peru—a city that does not restrict entry or the prices drivers can charge

6.   Oats

Answer 1

1. Coca-Cola and Pepsi. These products cannot be likely be produced in a perfectly competitive industry. A perfectly competitive market requires that the products should be homogenous. This means that the products should be identical in terms of branding and packaging. Since Coca-Cola and Pepsi are not identical they cannot be produced in a perfectly competitive market.
2. Potatoes- These are likely to be produced in a perfectly competitive market because there can be many firms or individuals producing identical potatoes.
3.  Private physicians in your local community - These cannot be produced in a perfectly competitive market since there can be an existence of a family relationship between the residents and physicians, which can serve as a barrier for other firms to set up health facilities in the local community.
4. Government bonds and corporate stocks- Perfectly competitive market cannot produce these products because the bonds issued by the government are not homogenous. Additionally, the stocks' quality of the two firms is not identical.
5.  Taxicabs in Lima, Peru- These services by the drivers cannot be produced in a perfectly competitive market because the drivers can change their prices, thus are not price takers.
6.  Oats - These are producible in perfectly competitive markets. This is because many firms or individuals can produce identical oats and there is no barrier to entry into the market.