Question

In: Economics

Describe the characteristics of a perfectly competitive market and a monopolistically competitive market? How are they...

  1. Describe the characteristics of a perfectly competitive market and a monopolistically competitive market? How are they similar? How are they different?

Solutions

Expert Solution

Perfect competition is a market structure type in which

There is large number of sellers and buyers in the market

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

There are no barriers to entry and exit

Long term economic profit is zero

Products are identical in nature

If we talk about a monopolistic competitive market then

It has large number of buyers and sellers in the market

Long term economic profit is zero

There are no barriers to entry and exit

Products are homogeneous differentiated in nature

So they are similar in terms of no barriers to entry and exit in the market, there are large number of buyers and sellers in the market and long term economic profitis zero in both the cases

But you will talk about the difference between them then perfect competition has identical products but in case of monopolistic market the products are differentiated in nature in terms of shape, size, colour etc


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