Question

Distinguish between perfectly competitive and monopoly

Answer 1

Perfect competition and monopoly are total opposites of each other.

In a perfectly competitive market:

1. There are many consumers and many producers

2. no barriers to exit and entry into the market,

3. homogenous goods

4. perfect information and well-defined property rights.

5. Perfectly competitive producers are price takers so market forces determine the price however they can choose the quantity they want to produce.

In a monopoly:

1. There is only one producer and many consumers.

2. lack of economic competition

3. lack of substitute goods so consumer cannot switch to another good easily

4. monopoly is a price maker so price is determined by the monopolist himself.

5. Public utility companies tend to be monopolies