Question

"Compare and contrast the output and pricing decisions of monopolistically competitive firms with those of perfectly competitive firms."

Your response should be no less than one page long, size 12 font, and double spaced.

Answer 1

There are many buyers and sellers in both types of market structures. There is free entry and exit in both market structures.

but under the monopolistically competitive market, firms produce differentiated products. While in a perfectly competitive market, all firms produce identical products.

Under the perfectly competitive market, firms are price takers. While in monopolistically competitive market, firms have some leeway in deciding their prices levels. firms in monopolistically produce differentiated products, so such firms have some power to decide the price level. under the perfectly competitive market, products are identical and buyers have perfect knowledge about the market. Thus, firms can not charge different price. Firm will lose all its buyers if it charge price that deviates from market price.

Selling cost is high in a monopolistically competitive market, there is no selling cost in a perfectly competitive market. Products are differentiated in monopolistically competitive market, thus all sellers seek to attract the buyers to buy their products.