The cosmetics industry is not considered by economists to be a good example of perfect competition because ?
Correct answer: C. firms spend a large amount of money on advertising
- A. there are many EU and government health controls on cosmetic products
- B. there are a very large number of firms in the industry
- C. firms spend a large amount of money on advertising
- D. profit margins are very high for both producers and retailers
Explanation
Heavy advertising suggests that firms compete by creating or emphasizing product differences rather than selling an identical product at a market price. That feature is inconsistent with the assumptions of perfect competition.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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