Question

In: Economics

Compare and contrast perfectly competitive markets with monopolistically competitive markets. Which is more realistic and why?

Compare and contrast perfectly competitive markets with monopolistically competitive markets. Which is more realistic and why?

Solutions

Expert Solution

Perfectcompetition is market type in which-

There are large number of buyers and sellers in the market

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

There are no barriers to entry and exit in the market

Long term economic profit is zero

It is assumed that buyers and sellers full knowledge about the market

Products are homogeneous in nature

A monopolistic competition is a market type in which-

There are large number of buyers and sellers in the market

There are few barriers to entry and exit in the market

Long term profit is zero

Products are slightly differentiated in terms of shape, size, colour etc.

If we talk about realistic then monopolistic is more realistic as compared to perfect competition market because in perfect competition products are said to be homogeneous

But in reality it is not possible for example let's take an example of vegetable market where it is assumed that it is perfect competitive but vegetables are slighly differentiated in terms of their freshness, quality, shape etc but in monopolistic there is reality because firms compete in terms of their quality, service of the product etc


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