Question

What makes a monopolistically competitive market different from a purely competitive market or a monopolist?

Answer 1

Monopolistically competitive market characterizes an industry which has many firms that offers very similar product and services but are not perfect substitutes. In perfect competition, all the firms produce goods that are perfect substitutes of each other. In a monopoly, there is a single firm that produces all the goods. The barriers to entry and exit in a monopolistic competition is low, whereas there is no barriers to entry and exit in the perfect competition. On the other hand, there are high barriers to entry and exit in the monopoly. Decisions of any one firm does not affect those of its competitors in the monopolistic competition and similar is the case for perfect competition. In a monopoly there are no competitors. There is no market power of the firms in perfect competition, whereas there is little market power for the firms in the monopolistic comeptition. In monopoly the firm has full power over the market.