From cfai's mock exam... Which characteristic is a firm least likely to exhibit when it operates in a market with a downward sloping demand curve, many competitors, and zero economic profits in the long run? A. Low barriers to entry B. Differentiated product C. No pricing power Answer = C "The Firm and Market Structures," Richard G. Fritz and Michele Gambera Sections 2.1, 2.2, 4 The characteristics of monopolistic competition include a large number of competitors, low pricing power, and the production of differentiated products (through advertising and other non-price strategies), but these still result in some pricing power. The ease of entry results in zero economic profits in the long run. How was this question NOT describing perfect competition, and therefore b should be the answer, no?

I believe it's because a firm's demand curve is flat in perfect competition.

@BobBarkerPlaysPlinko perfect competition is perfectly elastic, horizontal. The curve is not downward sloping. Main clue. The curve is downward sloping for the other markets.

A CFA Level 1 Discussion About Style Of Market

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This topic has 2 replies, 3 voices, and was last updated Oct-178:03 am by knight90.

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- CFA_anon
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  25 Oct 2017 at 7:46 am
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  From cfai’s mock exam…
  
  Which characteristic is a firm least likely to exhibit when it operates in a market with a downward sloping demand curve, many competitors, and zero economic profits in the long run?
  A. Low barriers to entry
  B. Differentiated product
  C. No pricing power
  Answer = C
  “The Firm and Market Structures,” Richard G. Fritz and Michele Gambera Sections 2.1, 2.2, 4
  The characteristics of monopolistic competition include a large number of competitors, low pricing power, and the production of differentiated products (through advertising and other non-price strategies), but these still result in some pricing power. The ease of entry results in zero economic profits in the long run.
  
  How was this question NOT describing perfect competition, and therefore b should be the answer, no?
- CFAcharterwannabe
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  25 Oct 2017 at 8:02 am
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  @BobBarkerPlaysPlinko‌ perfect competition is perfectly elastic, horizontal. The curve is not downward sloping. Main clue. The curve is downward sloping for the other markets.
- knight90
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  - CFA Level 2
  25 Oct 2017 at 8:03 am
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  I believe it’s because a firm’s demand curve is flat in perfect competition.
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