Monopolistic VS Perfect

Question 1

Similarities between perfect comp. and monopolistic comp.

Answer 1

• There are many small firms relative to the size of the markets: Many competitors meaning their market share is relatively insignificant
• Normal profit in the LR
• supernormal profit in the SR

Question 2

Differences between perfect comp. and monopolistic comp.

Answer 2

Monopolistic:
- Slight monopoly power
- Downward D. Curve
- Firms are price-makers
- Allocatively Inefficient in the LR
- Slight EOS
- Varied products

Perfect Competition:
- No monopoly power
- Horizontal D. curve
- Firms are price-takers
- Allocatively Efficiency in the LR
- No EOS
- Homogenous products