Question

Contrast perfect competition with monopolies and monopolistic competition, providing an example of each.

Answer 1

In the case of perfect competition , firms are price-takers, whilst firms are price-makers in monopoly competition. Perfect competition is not possible, it is a hypothetical situation and, on the other hand, a practical scenario is monopoly competition.

Under perfect competition price at balance output is equal to marginal cost. Although the price is higher than the average cost under monopoly.

Under perfect competition, the entry or exit of companies into the industry is not constrained. Under simple monopoly, firm entry and exit barriers are high. Under simple monopoly, a monopolist may charge different prices from the various buyer groups. But, it is by definition absent in the perfectly competitive market.

A monopoly market and a perfectly competitive market are two market structures which have several key differences in terms of market share, price control and entry barriers. In a monopolistic economy, there is only one company that controls the amount of price and availability of products and services and that company has complete control over the market. Unlike a monopolistic economy, many companies are composed of a completely open economy, where no one firm has monopoly dominance. Neither industry is completely monopolistic in the real world, or fully competitive. Each real-world market combines elements of those two types of market.

Every high street offers examples of monopolistic competition.

Monopolistic competitive firms are the most frequent in industries where differentiation is possible , for example:

The restaurant industry
Hotels, pubs, and
General Retailing specialist
Consumer services, for example hairdressing

Example of perfect competition are:

Individual enterprises may be indistinguishable from the average client. The ability and readiness to switch is therefore easy and cost free.
A notable example is the dairy. Many farmers, for example, sell milk to supermarkets but the product is very similar. Supermarkets actually change contracts with dairy producers, without even noticing customers.