give the difference between perfect competition market and monopolistic competition market?
Answers
Difference:
Following points make clear difference between both the competitions:
1. Output and Price:
Under perfect competition price is equal to marginal cost at the equilibrium output. While under monopoly, the price is greater than average cost.
2. Equilibrium:
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Under perfect competition equilibrium is possible only when MR = MC and MC cuts the MR curve from below. But under simple monopoly, equilibrium can be realized whether marginal cost is rising, constant or falling.
3. Entry:
Under perfect competition, there exist no restrictions on the entry or exit of firms into the industry. Under simple monopoly, there are strong barriers on the entry and exit of firms.
4. Discrimination:
Under simple monopoly, a monopolist can charge different prices from the different groups of buyers. But, in the perfectly competitive market, it is absent by definition.
5. Profits:
The difference between price and marginal cost under monopoly results in super-normal profits to the monopolist. Under perfect competition, a firm in the long run enjoys only normal profits.
In a monopolistic market, prices are generally high for goods and services because firms have total control of the market. In this type of market, firms are price makers because they control the prices of goods and services. Firms have total market share, which creates difficult entry and exit points. Since barriers to entry in a monopolistic market are high, firms able to enter the market are still often dominated by one bigger firm.
Perfect Competition
In a market that experiences perfect competition, prices are dictated by supply and demand. Firms in a perfectly competitive market are all price takers because no one firm has total market control. Unlike a monopolistic market, firms in a perfectly competitive market have a small market share. Barriers to entry are relatively low and allow firms to enter and exit easily