SIMILARITIES AND DIFFERENCES BETWEEN MONOPOLISTIC COMPETITION AND PERFECT COMPETITION

SIMILARITIES AND DIFFERENCES BETWEEN MONOPOLISTIC COMPETITION AND PERFECT COMPETITION

There is free entry and exit in both markets.

DIFFERENCES BETWEEN MONOPOLISTIC COMPETITION AND PERFECT COMPETITION

	Monopolistic competition	Perfect competition
1	There is product differentiation, i.e. products are heterogeneous.	Product are the same, i.e they are homogeneous
2	It has control over price or output, i.e it is a price giver.	It has no control over price, i.e it is a price taker.
3	Different prices rule the market	Priced is fixed
4	Price and quantity are determined by the producer or supplier	Price and quantity are determined by the interaction of the forces of demand and supply
5	Entry and exit are restricted	There is free entry and exit
6	Price is higher than both MC and MR	The equilibrium level is established where MC = MR = P
7	There is only one or single producer or supplier or firm of a particular commodity and many buyers	There are many buyers and sellers or firms in the industry
8	They can discriminate due to different elasticity of demand for the products.	Absence of discrimination because there is perfect elasticity of demand
9	There is under-utilization of resources	There is duplication of resources
10	There is no perfect knowledge, i.e. knowledge is limited	There is a perfect knowledge of market situation
11	Demand curve is downward sloping	It is perfectly inelastic, i.e. it remains the same at all levels of output.
12	Transport cost is included in the price	Transport cost is excluded in the price
13	They make abnormal profit in the short and long runs	They make abnormal profit only in the short run.