Asked by Abobakr Kamal on May 12, 2024
Verified
Several years ago, Alcoa was effectively the sole seller of aluminum because the firm owned nearly all of the aluminum ore reserves in the world. This market was not perfectly competitive because this situation violated the:
A) price-taking assumption.
B) homogeneous product assumption.
C) free entry assumption.
D) A and B are correct.
E) A and C are correct.
Aluminum Ore Reserves
Refers to the total amount of aluminum ore available for mining in a specific area or globally, which is crucial for industrial production.
Price-Taking Assumption
The assumption that individual firms or consumers do not have the power to influence market prices due to their small size relative to the market.
Free Entry Assumption
The free entry assumption posits that in a competitive market, new firms are free to enter the market and compete without facing significant barriers.
- Attain insight into the characteristics and foundational assumptions of perfectly competitive markets.
- Understand the elements that impede the formation of perfectly competitive markets, including obstacles to entry.
Verified Answer
MM
Michael MutindaMay 16, 2024
Final Answer :
E
Explanation :
Alcoa's control over nearly all aluminum ore reserves would violate the price-taking assumption, as it could influence market prices due to its dominant position. It also violates the free entry assumption, as new firms would find it difficult to enter the market without access to aluminum ore reserves. The homogeneous product assumption is not directly violated by Alcoa's market position.
Learning Objectives
- Attain insight into the characteristics and foundational assumptions of perfectly competitive markets.
- Understand the elements that impede the formation of perfectly competitive markets, including obstacles to entry.