Monopoly and Market Power( Competitive Market)

Part B: What makes a competitive market?

In the section entitled Low Barriers to Entry, this chapter lists six characteristics for a competitive market that can help an economy achieve the virtues of competition. The six characteristics are:

a) Many firms

b) Identical products

c) MC = p

d) Low barriers to entry

e) Zero economic profit

f) Perfect information

However, these these characteristics don’t always occur. Pick a market for a good or service with which you are familiar (for example, college textbooks or car insurance—but don’t use these examples). Be sure you select a good or service produced by firms operating to make a profit. Don’t pick something produced by the government or a non-profit firm.

1) In the market you selected, which characteristics are present?

2) Which characteristics are absent?

3)Pick one of the absent characteristics. Provide evidence to support your judgment that it is missing.

4) For one of the absent characteristics you identified in (2), describe a government policy to remedy the shortcoming, so that more of the virtues of competition could be achieved. Explain why production would be more efficient and why there would be a more optimal mix of output.