Suppose there are four gas stations in town, each selling identical gasoline and none has any control over the market price. Which market structure best describes this situation?

• A. Monopolistic competition
• B. Perfect competition
• C. Oligopoly
• D. Monopoly

Answer: (B)

Verified step by step guidance

1. Step 1: Identify the key characteristics of the market described. Here, there are four gas stations selling identical gasoline, and none has control over the market price.
2. Step 2: Recall the defining features of different market structures: Monopoly (one seller), Oligopoly (few sellers with some market power), Monopolistic Competition (many sellers with differentiated products), and Perfect Competition (many sellers with identical products and no price control).
3. Step 3: Analyze the number of sellers: four gas stations is a small number, which might suggest oligopoly, but consider the product type and price control.
4. Step 4: Since the gasoline is identical and no station controls the price, this implies price-taking behavior typical of perfect competition, where products are homogeneous and firms are price takers.
5. Step 5: Conclude that the market structure best describing this situation is Perfect Competition because of identical products and no price control by individual sellers.