Question

Discuss in detail the transition of a firm from perfect competition to monopolistic. Explain with a good example.

Answer 1

Perfect competition is a market structure type in which-

1There are large number of buyers and sellers in the market

2.Price is only decided by the market forces that is demand and supply

3.There are no barriers to entry and exit in the market

4.Long term economic profit is zero

5.products are homogeneous in nature

6.It is assumed that both buyers and sellers having full knowledge about the market

If we talk about a monopolistic market then-

1.it has large number of buyers and sellers in the market

2.There are no barriers to entry exit in the market

3.Sellers have some controls to decide the price in the market

4.The products are differentiated in nature in terms of shape, size, colour, quality

The best example of perfect competition can be vegetable shops in which every Store has almost same type of vegetables

When a firm decide to transit or move from perfect competition to monopolistic then it will face very high competition because in this market

Instead of selling the same type of product but products are slightly differentiated

The best example of this can be toothpaste industry in which industry in which almost every firm sells the same type of toothpaste but they are different in terms of packaging, advertising, taste, colour, quality etc