The two markets such as perfect completion and the monopolistic competition are having some similarities and...

The two markets such as perfect completion and the monopolistic competition are having some similarities and some differences. Analyze these characters. ( support with example and diagram)

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Expert Solution

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 -

Rahul Sunny answered 1 year ago

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