ECO550 - Assignment #2

Betsy’s Baubles operates in what can be most closely described as pure competition market structure,

“characterized by alarge number of buyersand sellers of ahomogeneous(nondifferentiated)product. Entry and exitfrom the industry iscostless, or nearly so.Information is freelyavailable to all marketparticipants, and thereis no collusion amongfirms in the industryhomogeneous(nondifferentiated) product. Entry and exitfrom the industry iscostless, or nearly so.Information is freelyavailable to all marketparticipants, and thereis no collusion amongfirms in the industry(McGuigan, 2012, p. 352).

            Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets..  Given this market structure,Betsy’s Baublesis a price taker because of sheer magnitude of hair accessory manufacturers. The amount of perfect substitutes for the product forces the firm to sell its output at the going market rate. In a perfectly competitive market, a firm's demand curve is perfectly elastic. Due to such high price elasticity, any shift in price will cause buyers to choose other manufactures products.
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