SIMILARITIES AND DIFFERENCES BETWEEN MONOPOLISTIC COMPETITION AND PERFECT COMPETITION

SIMILARITIES AND DIFFERENCES BETWEEN MONOPOLISTIC COMPETITION AND PERFECT COMPETITION

  • Similarities

 There is free entry and exit in both markets.

  •  There is excess or abnormal profit for both in the short run.
  •  There is a large number of firms in both markets.
  •  Profit is maximized when marginal cost (MC) equals marginal revenue (MR).

DIFFERENCES BETWEEN MONOPOLISTIC COMPETITION AND PERFECT COMPETITION

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

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