Question

There are dozens of pasta producers that sell pasta to hundreds of Italian restaurants nationwide. The restaurant owners buy from the cheapest pasta producer they can. While pasta manufacturers must pay licensing fees to their local government and undergo regular food-safety inspections, anyone who passed inspections can acquire and maintain their license.

a) many firms
b) identical
c) perfect competition

Answer 1

C) perfect competition

This can be considered a situation where perfect competition exists since there are many firms operating in the market (no company can set the price of the product), which sell identical products (or very similar products) and the entry barriers are not significant nor hard to overcome (only some basic food safety regulations).