Question

The model of competitive markets relies on these three core assumptions:

1. There must be many buyers and sellers—a few players can't dominate the market.
2. Firms must produce an identical product—buyers must regard all sellers' products as equivalent.
3. Firms and resources must be fully mobile, allowing free entry into and exit from the industry.
The first two conditions imply that all consumers and firms are price takers. While the third is not necessary for price-taking behavior, assume for this problem that a market cannot maintain competition in the long run without free entry.
Identify whether or not each of the following scenarios describes a competitive market, along with the correct explanation of why or why not.
The government has granted a patent to a pharmaceutical company for an experimental AIDS drug. That company is the only firm permitted to sell the drug.
a. yes,meets all assumptions
B. no,no free entry
C. no, not many sellers
D. No, not an identical product

Answer 1

B. No, no free entry

Step-by-step explanation:

With a patent granted to one pharmaceutical company to produce and sell an experimental AIDs drug, all doors of free entry and exit have been locked against other pharmaceutical companies. This implies that one of the major ideals of a competitive market is violated. Without free entry and exit, there cannot be many sellers, and we cannot discuss about the possibility of firms producing identical products because there is only one drug.