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Solution Monopoly differs from perfect competition in the following ways :(i) In monopoly, there is a single seller (or firms) of a product whereas under perfect competition there arelarge number of sellers (or firms). (ii) A monopolist produces or sells a product which has no close substitute. On the other hand, under perfect competition, the products sold by the various firms are homogenous or identical. They are perfect substitutes of each other.(iii) In case of monopoly, there is no freedom of entry of new firms in the industry whereas under perfect competition, there is free entry and exit of firms in the industry. (iv) For a monopolist firm, the demand curve of its product slopes downward to the right. On the other hand, a perfectly competitive firm faces a perfectly elastic downward curve (i.e., horizontal straight line).Economists can predict and describe the nature of a firm based upon its existing size, structure, behaviour and relationship to other firms (market power). This is known as theory of the firm. Two possible market structures that a firm may belong to are perfect competition and monopolistic competition (there are also oligopolies and monopolies). Perfect competition exists when an industry consists of an infinite amount (in reality a very large number) of firms. There are a number of assumptions that accompany a perfectly competitive market: 1) Each individual firm has no market power - Firms are too small, relative to the whole industry, to have a noticeable effect on the output of the whole industry by altering its own output. - The firm cannot affect the supply curve of the industry so it can’t affect the price of the product 2) The firm is a price-taker - Meaning, the firm has to sell at whatever price is set by the demand and supply in the industry as a whole 3) Firms produce homogenous goods (identical). - Not possible to distinguish between goods produced by different firms ie. No brand names or marketing 4) There are no barriers to entry/exit. - Firms are completely free to enter or leave the industry as they wish ie. No costs or legal barriers 5) All producers/ consumers possess perfect knowledge of the market ie. Prices, costs, quality of products, availability, etc. In real life, the closest industry to representing perfect competition is the agricultural market. ie. Wheat production in Europe Monopolistic competition exists if an industry has a fairly large number of firms present (albeit, fewer firms than in perfect competition). The assumptions that underlie a market in monopolistic competition are: 1) The firm has some price-setting ability - Firms are still relatively small compared to the industry, so actions of one firm are unlikely to have a great effect on its competitors. - Firms act independently of each other 2) It is possible to slightly differentiate between products. - Firms produce slightly different products from each other, so the consumer has choice. 3) There are no barriers to entry/exit -Firms are free to enter or leave the industry 4) Producers/consumers have almost perfect knowledge of the industry There exist a number of real life examples of markets in monopolistic competition, for example: nail salons, restaurants, car mechanics, etc. There are additionally similarities and differences in the profit abilities and efficiency of each market type: In both perfect competition and monopolistic competition, firms in the industry are profit maximisers. A firm is only able to make normal (zero economic) profits in the long run, but can make short-run abnormal profits or losses. In perfect competition, a firm achieves both allocative and productive efficiency in the long run. Consumers pay lower prices than in monopolistic competition, as they are only able to purchase homogenous products. In monopolistic competition, a firm never achieves allocative or productive efficiency as consumers are willing to pay a slightly higher price in order to have differentiated products (choice). Buying and selling of products generate revenues and fulfill the needs of people. Buyers and sellers meet and conclude the transaction, and that is termed as Market. Table of Contents
Buying and selling of products generate revenues and fulfill the needs of people. Buyers and sellers meet and conclude the transaction, and that is termed as Market. Three types of market structure are Perfect Competition, Monopoly, and Imperfect competition. Perfect competition and Monopoly have different types of market structures, and they are very different from each other. The main difference between perfect competition and monopoly is that there are fewer entry barriers as there are many competitors, whereas monopoly has no competition and is dominated by a single seller. In perfect competition, the products are standardized, homogeneous, and identical, whereas, in the case of monopoly, there exists product differentiation, they can have substitutes, and can exist non-price competition also.  A form of market structure where there is a large number of competitions, a large number of seller and buyers who deals with similar goods and services are termed as perfect competition. There are almost no entry barriers, and they are driven by small firms which generally have no such influence on the market prices of the products. Another form of market structure where is minimal competition and low entry and exit barriers, along with the changed quality and variants of the products offered by each seller, are termed as Monopoly or monopolistic competition. There are a large number of buyers for specific products with a limited number of sellers for that product. Comparison Table Between Perfect Competition and Monopoly
What is Perfect Competition?A perfectly competitive market structure has many buyers and sellers. The consumer can choose the goods and services of their choice. The prices are dependent on supply and demand. The firms in perfect competition are price takers as not one firm has any total control of the market. The barriers to this competition are very low, and small firms enter and exit easily. Small firms have relatively small market shares. In this, the firm will always end up earning normal profits in the short run, and there are no abnormal profits. The products are also homogeneous, identical and there is no product differentiation. The intense competition in this market makes the price influence every firm, and if there is an increase or decrease in the prices of the products, then the other sellers should also match the same prices. What is Monopoly?In a Monopoly market, there are not enough sellers, and there is a large number of buyers. In this, the firms are price makers, and thus the prices are generally very high as the firms have total control over the market. They have high and difficult entry and exit barriers. The firms that enter these markets are generally dominated by the bigger firms. In this competition, the products are not standardized, and they can have substitutes. The products are very specific, and buyers are not left with many choices to buy. There can have abnormal profits in the short run. Although they are price makers, the government keeps checking on them to avoid product discrimination. Main Differences Between Perfect Competition and Monopoly
ConclusionBoth these market structures are quite different if seen the above differences. They both have different structures, profits, outputs, prices, and others. While perfect competition seems quite easy whereas Monpoyl competition has features of both monopoly and perfect competition. The firms are price takers in case of Perfect competition, whereas the firms are price makers in case of monopolistic competition. While there can be abnormal profits in the short-run period in the case of monopoly, this feature is not there in perfect competition. Markets, however, play a very important part in our lives by being a good platform and a point of contact for those who can buy the goods. Monopoly has no competition, and thus the seller is free to charge whatever he wants from the customer. So to make it more realistic and justifiable, the government should take initiatives to make it act in the sole interest of the customer. References
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What are the similarities between perfect competition and monopoly?One of the key similarities that perfectly competitive and monopolistically competitive markets share is elasticity of demand in the long-run. In both circumstances, the consumers are sensitive to price; if price goes up, demand for that product decreases.
What is the difference between perfect competition and monopoly competition?In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods.
What are three specific differences between perfect competition and monopoly?Monopoly vs Perfect Competition Comparison Table. What are the similarities between monopoly and monopolistic competition?(1) Both in monopoly and monopolistic competition, the point of equilibrium is at the equality of MC and MR and the MC curve cuts the MR curve from below. ADVERTISEMENTS: (2) In both, the demand curve (AR) slopes downward to the right and the corresponding marginal revenue (MR) curve is below it.
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What are the similarities and differences between perfect competition and a monopoly?
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