Scenario 8.1:
Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly.
-According to Scenario 8.1, Fizzle and Sizzle:
A) would be perfectly competitive if their purification costs were equal; otherwise, not.
B) would be perfectly competitive if it costs Fizzle $500,000 yearly to keep that land.
C) may or may not be perfect competitors, but their position on the river has nothing to do with it.
D) cannot be perfect competitors because they are not identical firms.

Question

Quizplus · Accepted Answer

The position on the river affects their costs but does not determine whether they are perfect competitors. Perfect competition is defined by market characteristics like many buyers and sellers, homogeneous products, and free entry and exit, not by cost differences due to location.

Scenario 8.1: Two Soft-Drink Firms, Fizzle & Sizzle, Operate on a River