Starbucks Coffeehouse Face A Downward-Sloping

Answer The market for dairy farmers can be regarded as perfectly competitive market. This is because it satisfies most of features of perfectly competitive market. The product sold by each dairy farmer is almost identical also there are large number dairy farmers and large number of buyer of dairy product. In addition, we do not find much entry and exit barriers in this market. So this market can be regarded as a perfectly competitive market. In this market price is determined by the market and each firm takes this price as given. This is because any price change by a dairy farmer might cost him his market share as consumer might switch to some other dairy farmer and therefore it accept market price as given. As a result it would face a horizontal demand curve implying price is fixed at levels of output for a dairy farmer. On the other hand, the market for coffeehouses can be regarded monopolistic competitive market since product sold by each coffeehouse would be different from each other in some form i.e. there is production differentiation in this market. This product differentiation allows the Starbucks coffeehouses to have some kind monopoly power at its product