Do you ever think why OPEC is created or why Perrier water sold in a green tear-shaped bottle? The answers to this question lie in understanding Monopolistic and perfect competition. Both are extreme market structure. Under perfect competition, many suppliers offer a unique product in the long run where entry and exist may erase economic benefits. On the other side, it is identical in the monopolistic competition there is no close substitute in the market. Addition to this artificial barrier might not exist. This polar market provides an advantage to some industries and offering a useful description to a great extent. In a monopolistic competition this will dictate policies and prices of supply goods and services for controlling market sphere (Zhang, 2019).
But it can be difficult to say most of the firms under these market types benefitted equally. Some markets are bound to produce fewer products or some industries produce essential products or commodities for its consumers. Let’s discover how perfect competition differs completely from monopolistic completion and what are their characteristics.
During 1920s 1930s two models of the monopolistic competition were formulated by economists that can fit between monopoly and perfect competition (Zhang, 2019).
As the name suggested, Monopolistic competition is the market that contains both the elements of monopoly and competition. In accordance with Chamberlin in monopolistic competition, many suppliers produce products which are substitute but consumers don’t consider it. That is why firms operated into the market are not price takers. Henceforth all the price-makers firms face downward slopes.
As defined by essay helpers, monopolistic firms face a low entry barrier that causes smooth leaving and entry of the firm.
Features of Monopolist competition
- In monopolistic, The product differentiation somewhat occur among sellers
- Products In monopolistic are having close substitutes
- Pricing is set by sellers
- The curve seems to be downward and relatively elastic
- Product try to create brand loyalty through promotion (Thisse & Ushchev, 2018)
- Average revenue is greater than marginal revenue that shows for increasing sales firms has to lower down the prices.
Figure 1.1 described monopolistic competitor faces a downward-sloping demand curve because product differentiation somewhat resembles with other suppliers. Thus the price and average cost in monopolistic competition exceed (AGARWAL, 2020).
On that note it is opined by economic assignment writer, if the firms have the same curve then monopolistic firms will produce less and charges more.
It has been described by several economists when firms attributing monopolistic competition don’t produce at minimum average cost; this said to be they are incurring excess capacity. That’s resulted in low production of products that further leads to the lowest average cost.
Henceforth it can be deduced- The marginal value of increased output exceeds its marginal cost, this greater output cause increases social welfare.
Such excess capacity is noticeable in flower shops, book stores, restaurants etc.
It is a hypothetical and rarely occurring phenomenon when perfect competition occurs between the sellers is fair. In perfect competition, a large number of sellers would add homogenous products into the market, thus no individual seller will perceptibly be influenced by prices. Each seller can act independently tends to adjust their output based on the profits assuming the market price will not change (Gretsky et.al, 2020).
The long-run performance of perfect competitive industry lies in three features
- Industry output and input lies at feasible maximum and minimum respectively
- The entire production would be attainable at a minimum average cost
- Others factor would be influenced the income retain
Henceforth many essay writers suggested,perfect competition will be an idea only when there is free and easy mobility of the production factor. Also, the relative output of industries should not be in such a way it will maximize customer satisfaction.
Characteristics of Perfect Competitions
- Entry and exist in such a market is free
- It is a theoretical situation where the competition lies at its peak
- The firms don’t have control over the prices (Vartale, 2020)
- The product offered by seller will be the same and if any firm tries to increases its prices, then it can lose its competition
As figure 1.2 depicts the perfect competitors demand curve is a horizontal line. Demand curve found to be tangent to the lowest point of the firm’s average total cost curve (Zhang, 2019).
Thus a perfect competition, in the long run, will produce the lowest possible average cost.
Monopolistic Competition Vs Perfect Competition
|Difference||Monopolistic Competition||Perfect Competition|
|Definition||It is defined as market condition where several sellers selling close substitutes of goods and services(Carson, 2020)||It is defined as market condition where several sellers selling same goods and services|
|Price and Police||Each firm offers their won prices||It is totally depended on the demand curve and supply forces of the industry (Vartale, 2020)|
|Exist and Entry||Entry and Exist is comparatively easier||It faces fewer barriers|
|Demand Curve||Elastic, downward slopping||Perfectly elastic, horizontal line (Surbhi, 2016)|
|Average and Marginal Revenue||Average revenue is greater than marginal revenue||Both average and marginal revenue are equal|
From the comparison, many online assignment help experts opined perfect and monopolistic competition is so different in their respective markets but its effects on the behavior of others in the market can be little or more. In case you are finding problems in solving complex economic assignments problems, then you can take instant assignment help from SourceEssay experts whenever you want.
In this blog, we have framed comparative differences in perfect and monopolistic competition successfully. As it is defined in this article, Monopolistic competition is the market that contains both the elements of monopoly and competition that is why the demand curve seems to be downward and relatively elastic. In addition to this, we described perfect competition where a large number of sellers would add homogeneous products into the market. This also suggested the product offered by seller will be same and if any firm tries to increases its prices, then it can lose its competition. Later we illustrated how their curve is different and what is their impact on the market situation. Thus it can be said, in the long run, monopolistic competitors like perfect competitors earn normal profits because there is a low barrier in monopolistic condition.
AGARWAL, P. IMPERFECT COMPETITION: MONOPOLISTIC COMPETITION.
Carson, R. L. On the Nature of Equilibrium in Monopolistic Competition.
Gretsky, N. E., Ostroy, J. M., & Zame, W. R. (2020). An application of measure theory to perfect competition. In Stochastic Processes and Functional Analysis (pp. 113-121). CRC Press.
Surbhi.S (2016) Difference Between Perfect Competition and Monopolistic Competition, retrieved from- https://keydifferences.com/difference-between-perfect-competition-and-monopolistic-competition.html, Data Accessed on 10 October, 2020
Thisse, J. F., & Ushchev, P. (2018). Monopolistic competition without apology. In Handbook of Game Theory and Industrial Organization, Volume I. Edward Elgar Publishing.
Vartale, M. (2020). Features of Perfect Competition.
Zhang, W. B. (2019). Monopolies and perfect competition in Solow–Uzawa’s general equilibrium growth model. Редакционная коллегия, 12(4), 405.