Q.Show how the price of a commodity is determined through the interaction of aggregate demand and aggregate supply in a perfectly competitive market. Or Explain how a firm reaches long run equilibrium in a perfectly competitive market.

Perfect competition implies a single uniform price for all firms (so 'firms sell at different prices' is FALSE); oligopoly, by definition, is a market with many buyers but only a few sellers (so that statement is TRUE).

Main statement -- 'In a perfectly competitive market, firms sell goods at different prices from one another': This is FALSE. Perfect competition is defined by, among other features, a homogeneous (identical) product and perfect knowledge among buyers and sellers. Because the product is identical and everyone knows all prices being charged, no firm can charge more than the market price (it would lose all its customers to rivals selling the same good cheaper) and no firm needs to charge less (it can sell its entire output at the going price). The result is the 'law of one price' -- every firm in a perfectly competitive market sells at the same single market-determined price.

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Perfect competition requires many sellers (one seller is the defining feature of monopoly instead), so the main statement is FALSE; and Lerner's monopoly power index can never be negative for a profit-maximising firm, so that statement is also FALSE.

Main statement -- 'In a perfectly competitive market, there is only one seller': FALSE. One of the defining conditions of perfect competition is a very large number of buyers and sellers, each so small relative to the market that no single participant can influence the price (everyone is a 'price taker'). A market with only one seller is, by definition, a MONOPOLY, not perfect competition.

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Blank 1: Monopoly market. Blank 2 (Or): homogeneous commodity.

Fill in the blank 1: In a Monopoly market there is only a single seller controlling the entire supply of a commodity with no close substitute. Since there is exactly one firm producing the entire output of that commodity, the firm itself IS the industry — there is no separate 'industry' standing apart from the single monopolist firm.

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Since a monopoly has only one producer, that firm and the industry are, by definition, one and the same - the statement is true.

In market structures with many sellers (such as perfect or monopolistic competition), it is useful to distinguish between an individual FIRM (one producer) and the INDUSTRY (the sum of all firms producing that good) - the industry's output/price is the aggregate outcome of many individual firms' decisions, and no single firm can influence it alone. Under MONOPOLY, however, there is, by definition, only ONE seller of the good (with no close substitutes) - so the entire output supplied to the market by 'the industry' IS exactly the output of this single firm. There is, quite literally, no other firm to distinguish …

The first statement is True (perfect competition = homogeneous product); the second is False (oligopoly means few sellers, not numerous ones).

Perfectly competitive market — homogeneous product. True. One of the defining features of a perfectly competitive market is that every firm sells an identical (homogeneous) product, so that buyers have no reason to prefer one seller's output over another's except on price — this is precisely why no single firm can charge more than the ruling market price.

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