Question

Distinguish between the following:

Perfect competition and Monopolistic competition

What are the features distinguishing monopolistic competition and perfect competition?

Discuss four differences between perfect competition and monopolistic competition.

Mention two important differences between perfect competition and monopolistic competition.

Answer 1

Sr. No.	Basis of Comparison	Perfect competition	Monopolistic competition
1.	Number of sellers	There are a large number of sellers in the market.	There are a fairly large number of sellers.
2.	Number of buyers	There are many buyers in the market.	There are many buyers in the market.
3.	Nature of the product	Firms sell a homogeneous product.	Firms sell differentiated products.
4.	Nature of the knowledge	Buyers and sellers have perfect knowledge.	Buyers and sellers have some knowledge.
5.	Nature of entry and exit	There is free entry and exit of firms.	There is free entry and exit of firms.
6.	Market power	Firms have no control over the market.	Firms have slight control over the market.
7.	Nature of influence on price	Firms are price-takers.	Firms are price-makers.
8.	Selling cost	There is no selling cost like advertisement.	There is heavy selling cost like ads and branding.
9.	Slope of the demand curve	The demand curve is perfectly elastic.	The demand curve slopes downward but is more elastic.
10.	Relationship between AR and MR	Average revenue is equal to marginal revenue.	Average revenue is greater than marginal revenue.
11.	Nature of profits (long run)	Firms earn only normal profits in the long run.	Firms also earn normal profits in the long run.
12.	Examples	Wheat and rice are examples.	Toothpaste, soap, and cosmetics are examples.