Perfect competition and monopolistic competition are two
different types of markets, but there are many similarities and
dissimilarity between them.
Similarities between Perfect Competition and
Monopolistic Competition:
- There are large number of buyers and sellers in both types of
market.
- There is freedom of entry and exit to firms in both the
markets.
- The equilibrium condition in both the markets is same i.e
equilibrium is at point where MR=MC.
- In both the market situations, firms can earn super-normal
profits or incur losses in the short-run. But in the long-run,
firms earn only normal profit.
Dissimilarities between Perfect Competition and
Monopolistic Competition:
- In perfect competition every firm is a price taker( price is
determined in the market by the forces of demand and supply) but in
monopolistic competition every firms have their own pricing
strategy.
- All the firms in a perfectly competitive market sells a
homogenous product but in a monopolistically competitive market the
products are similar but differentiated.
- In a perfectly competitive market the demand curve(i.e. AR=MR)
is perfectly elastic and is a horizontal straight line. But in a
monopolistically competitive market the demand curve is elastic i.e
downward sloping and the MR curve lies below it.
The similarities and dissimilarity can be seen from the
following graphs -