Whats the difference between perfect competition and monopolistic competition?

The distinction between monopoly and perfect competition is only a difference of degree and not of kind.

Difference:

Following points make clear difference between both the competitions:

1. Output and Price:

Under perfect competition price is equal to marginal cost at the equilibrium output. While under monopoly, the price is greater than average cost.

2. Equilibrium:

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Under perfect competition equilibrium is possible only when MR = MC and MC cuts the MR curve from below. But under simple monopoly, equilibrium can be realized whether marginal cost is rising, constant or falling.

3. Entry:

Under perfect competition, there exist no restrictions on the entry or exit of firms into the industry. Under simple monopoly, there are strong barriers on the entry and exit of firms.

4. Discrimination:

Under simple monopoly, a monopolist can charge different prices from the different groups of buyers. But, in the perfectly competitive market, it is absent by definition.

5. Profits:

The difference between price and marginal cost under monopoly results in super-normal profits to the monopolist. Under perfect competition, a firm in the long run enjoys only normal profits.

6. Supply Curve of Firm:

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Under perfect competition, supply curve can be known. It is so because all firms can sell desired quantity at the prevailing price. Moreover, there is no price discrimination. Under monopoly, supply curve cannot be known. MC curve is not the supply curve of the monopolist.

7. Slope of Demand Curve:

Under perfect competition, demand curve is perfectly elastic. It is due to the existence of large number of firms. Price of the product is determined by the industry and each firm has to accept that price. On the other hand, under monopoly, average revenue curve slopes downward. AR and MR curves are separate from each other. Price is determined by the monopolist. It has been shown in Figure 10.

8. Goals of Firms:

Under perfect competition and monopoly the firm aims at to maximize its profits. The firm which aims at to maximize its profits is known as rational firm.

9. Comparison of Price:

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Monopoly price is higher than perfect competition price. In long period, under perfect competition, price is equal to average cost. In monopoly, price is higher as is shown in Fig. 11. The perfect competition price is OP1, whereas monopoly price is OP. In equilibrium, monopoly sells ON output at OP price but a perfectly competitive firm sells higher output ON1 at lower price OP1.

10. Comparison of Output:

Perfect competition output is higher than monopoly price. Under perfect competition the firm is in equilibrium at point M1 (As shown in Fig. 11 (a)), AR = MR = AC = MC are equal. The equilibrium output is ON1. On the other hand monopoly firm is in equilibrium at point M where MC=MR. The equilibrium output is ON. The monopoly output is lower than perfectly competitive firm output.

Summary of Comparison:

A general comparison between monopoly and perfect competition for easy understanding has been depicted as under:

Perfect and monopolistic competitions are forms of market structure that determine the level of competitiveness between companies in a specific region.

What is Perfect Competition?

The term perfect competition is used to describe a market scenario where there are a large number of seller and buyers who are selling and buying similar goods and services.

Since the products and services bought or sold in this market scenario, there are no barriers to entry or exit and the prices are almost identical.

It is difficult to have a market with the characteristics that demonstrate a perfect competition, but the scenario is used to help understand other market structures, which include monopolistic or oligopolistic competitions.

What is Monopolistic Competition?

Monopolistic competition is used to explain a scenario where there are a large number of buyers of a specific product but a very few number of sellers of the same product.

A dominant seller controls prices, quality, and quantity of products or services in monopolistic competition.

Difference Between Perfect Competition and Monopolistic Competition

Price Determination for Perfect and Monopolistic Competition

In perfect competition, the forces of demand and supply determine the prices of goods and services. This means that all the firms in that market sell the products at that price.

The prices of goods and services in a monopolistic competition are determined by the enterprises in that market. Each company sells products at its prices.

However, the dominant company in a monopolistic competition has a ripple effect whereby it can determine the prices of goods and services in that market.

Product Standardization in Perfect and Monopolistic Competition

Product and service standardization characterize perfect competition. This means that all the products in that market have similar characteristics and are produced using the same technology.

On the other hand, goods and services offered in the monopolistic competition are not standardized. The products and services provided do not have similar features and are not produced using the same technology.

Consumers use the different features of the products and services to determine which goods to purchase owing to taste and preferences.

Number of Sellers and Buyers in Perfect and Monopolistic Competition

A large number of sellers producing similar goods and services characterize the market structure in perfect competition. Additionally, perfect competition has a large number of buyers buying the products produced by the companies.

Numerous sellers who sell close substitute goods and services to the buyers characterize a monopolistic competition. A dominant producer dominates regarding products produced and price determination in monopolistic competition.

Selling Costs of Perfect and Monopolistic Competition

In monopolistic competition, all the companies in the market structure produce different products and services, which mean that each firm bears the costs of selling and marketing the products. Each group has to advertise its distinct products or services.

Perfect competition is characterized by similar goods and services, which are sold at uniform prices. Moreover, the selling costs are less because the firms in the industry share the costs of advertising the goods and services on offer.

Average Revenue and Marginal Revenue for Perfect  and Monopolistic Competition

Average revenue (AR) and marginal revenue (MR) are equal in perfect competition. This means that, when the curves are plotted on a graph, the average revenue curve coincides with the marginal revenue curve.

AR = MR

In monopolistic scenario, the average revenue (AR) is higher than the marginal revenue (MR) in a monopolistic competition because any firm willing to increase its sales must lower down the prices of its goods and services.

AR > MR

Slope of Demand Curve

The slope of the demand curve in perfect competition is horizontal, which shows perfect elastic demand. This means that a little change in prices of goods and services leads to an infinite change in the number of products or services demanded.

The slope of the demand curve in a monopolistic show a downward trajectory, which is a representation of elastic demand. This means that changes in prices lead to relatively significant changes in quantity.

Barriers to Entry and Exit

Any company willing to enter and exit a perfect competition can do so with without difficulties. This is the reason why a perfect competition has many businesses leaving and joining in a market characterized by perfect competitions.

The entry and exit in monopolistic competition is a difficult task. New companies fear to enter such markets because there is an already existing dominant enterprise. Additionally, dominating corporations find it difficult to leave such markets because of the profits they are enjoying.

What is difference between perfect competition and monopolistic competition?

Which is the main difference between perfect competition and monopolistic competition Brainly?

What is the difference between competition and perfect competition?