What are two key differences between a monopoly and a perfectly competitive market? Explain.

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Expert Solution

Two Key difference between the monopoly and perfectly competitive market are mentioned below:

Entry and Exit of the Firm: In a perfect market condition the firm is allowed easy entry and exit in the market. If a single firm is making a supernormal profit in the market it will attract more firms and it will continue to the point as long as the firm doesn't make a supernormal profit anymore and same with the loss. A loss will allow the firms to exit the market. But, in a monopoly, there are several barriers to entry which doesn't allow the firms to enter and exit.
Level of production: In a perfectly competitive market, the firm produces at a point where the allocation efficiency is there i.e. the marginal cost of the last good produced is equal to the price the consumer has paid for that good. But, in a monopoly, there lies excess capacity and it means wastage of resources and no allocative efficiency.

Rahul Sunny answered 1 year ago

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