ECONOMICS
COMPETITION AND MARKET STRUCTURES
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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True
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False
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Either A or B
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None of the above
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Detailed explanation-1: -There is little differentiation between each of their products, as they use the same recipe, and they each sell them at an equal price. At the same time, sellers are few and free to participate in the market without any barrier.
Detailed explanation-2: -The statement mentioned is false. Product differentiation is introducing new products to reach a wider range of customers. It makes the product unique for the targeted audience.
Detailed explanation-3: -In a perfectly competitive market, commodity is homogeneous (identical). Thus, the buyers find no reason to prefer the product of one seller to the product of another. Hence the firms are price takers.
Detailed explanation-4: -In other words, the product of each and every firm in a perfectly competitive market is a perfect substitute to others’ products in terms of quantity, quality, colour, size, features, etc. Therefore, product differentiation is not possible under perfect competition.