Compare the three types of market structure: perfect competition, monopoly and monopolistic competition.

Expert Solution

POINTS OF COMPARISON	*PERFECT COMPETITION*	*MONOPOLISTIC COMPETITION*	*MONOPOLY*
Meaning	It a market situation which consists of a large number of buyers and sellers each of whom is well informed about the market conditions,and so none of the buyers or sellers have control over price.	Monopolistic competition is a market structure where the producers sell differentiated products which are close substitutes to each other.	Monopoly is a market situation where a single producer supplies a product which is highly unique,also there are strict barriers to entry in the monopoly.
Number of sellers	There are a many small sellers	There are several small sellers	There exists only one big seller.
Type of product	Usually in a perfect competition same or very similar homogeneous products are sold. For example agricultural produce.	In a monopolistic competition differentiated products are sold.They may seem same but are differentiated For example.Eateries.	There is a single unique product sold in monopoly which has no substitutes For example elactricity.
Size of the firm	Small firms operate in the perfectly competitive market.	Small as well as medium sized firms operate in a monopolistic competition.	Very large firms operate in a monopoly.
Entry and exit into the market	It is a free market structure in case of perfect competition and there is no barrier to entry or exit from the market	These markets contain a few barriers to entry and exist due to competition among the firms	Entry or exit in monopoly is very restricted.There is a strong control over the entry of a new firm.
Consumer Demand	Demand for the product remains constant in perfect competition.	There is low demand for product in a monopolistic competition.	There is extremely high demand for the product in a monopoly.
Government Interference	In a perfect competition firms face very little intervention from the government and operate freely	In case of a monopoly there is strict government intervention,as government imposes taxes on these firms,failure to pay which would result in the closure of the firms.	The government intervention in monopolistic competition is very limited and it depends on the kind of the firms,like for example a firm might have to obtain food permits etc.
Pricing power of the seller	In perfect competition the seller has very little pricing power,he is usually the price taker.	In case of monopolistic competition the seller has relatively higher pricing power as compared to the perfect competition.	Here the seller enjoys a significant pricing power as he is the only seller in the market and can dictate the price of the product,thus he is the price maker.

Rahul Sunny answered 1 year ago

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