Answer to Question #286245 in Microeconomics for Omosh

Question

compare and contrast the difference between perfect competition market and monopolistic market in an economy

Answer 1

A perfectly competitive market and a monopolistic market are market structures that have a number of distinctions in terms of price control, barriers to entry and market share.

The following are the differences between a monopolistic market and a perfect competition market.

1. A perfectly competitive market is composed of many firms where no single firm has market control while in a monopolistic market, there is only one firm that controls the supply and price levels of goods and services.
2. Price under perfect competition is determined by forces of demand and supply for the whole industry while in a monopolistic market, every firm has its own price-policy.
3. There is no selling problem under perfect competition where the product is homogeneous and hence, no selling costs while in a monopolistic market, the products are differentiated hence, selling costs are essential to push up the sales.
4. Under monopolistic competition there is product differentiation while in perfect competition, each firm produces and sells homogeneous products.

The similarities between these two market structures are,

1. In both market structures, firms compete with one another.
2. There is freedom of entry and exit of firms.
3. The equilibrium is established at the point of equality of marginal revenue and marginal cost.
4. The number of firms is vast in both market structures.
5. In both market structures, firms can earn super-normal profits or incur losses in the short run. In the long run, firms earn normal profits.