Question

Specify the nature of entry of competitors in perfect competition and monopoly.

Answer 1

• Perfect competition:
  Under perfect competition, there is the possibility of free entry and exit of the firm. In the short run, if an efficient producer produces supernormal profits, it attracts new firms to enter the industry. When a large number of firms enter, the supply would increase, resulting in lower price. An inefficient producer, disturbed by the loss, quit the market. It results in a decrease in supply so the price will go up.
• Monopoly:
  In a monopoly, there is a strict barrier for entry of any new firm.