Important differences between the perfect competition and monopolistic competition with two examples for each market.
Explanation of Solution
The market is a structure where there are buyers and sellers who sell and buy the goods and services between the buyers and sellers. The market competition is the market structure where there is a competition among the large number of sellers in the market in order to satisfy the needs of the large number of consumers.
The perfect competition and the monopolistic competition are two market structures where there are large number of buyers and sellers in the market. The products selling in the perfect competition are identical products which make the competition and make the firm the price takers, whereas on the other hand, the monopolistic competition is the market structure where there are many sellers in the economy but selling differentiated products and thus the goods are not perfect substitutes in the monopolistic competition.
There are no barriers to entry of new firms into the market under the perfect competition, whereas there are some barriers to the entry of new firms into the market under the monopolistic competition.
The best example for the perfect competition is the wheat and many other raw materials sold in the market. The haircuts and the restaurant meals are the best examples for the monopolistic competition in the economy.
Concept introduction:
Perfect competition: Perfect competition is the market structure where there are large number of buyers and sellers in the market selling the identical products at the market determined price level. Thus, the firms in the perfect competition will be the price takers.
Monopolistic competition: The monopolistic competition is a market condition where there will be a large number of sellers selling differentiated products.
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