Question

1-What is perfect competition? What is monopoly? Give examples.

2-How do the models of perfect competition and monopoly differ?

Answer 1

1:- 1:- Perfect competition is a market structure characterised by a complete absence of rivalry among the individual firms. Thus perfect competition in economic theory has a meaning diametrically opposite to the everyday use of this term. In practice businessmen use the word competition as synonymous to rivalry. In theory, perfect competition implies no rivalry among firms.As

• Foreign exchange markets. Here currency is all homogeneous. ...
• Agricultural markets. In some cases, there are several farmers selling identical products to the market, and many buyers. ...
• Internet related industries.

A market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute.

In a monopoly market, factors like government license, ownership of resources, copyright and patent and high starting cost make an entity a single seller of goods. All these factors restrict the entry of other sellers in the market. Monopolies also possess some information that is not known to other sellers.

Characteristics associated with a monopoly market make the single seller the market controller as well as the price maker. He enjoys the power of setting the price for his goods.

Examples: Microsoft and Windows, DeBeers and diamonds, your local natural gas company.

2:- In a perfectly competitive market, price equals marginal cost and firms earn an economic profit of zero. In a monopoly, the price is set above marginal cost and the firm earns a positive economic profit. Perfect competition produces an equilibrium in which the price and quantity of a good is economically efficient.