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Monopoly competition

Jan

16

2012

What is the difference between Perfect and monopolist competition.

In: Management Asked By: [255 Blue Star Level]
Answer #1

Distinction between perfect and monopolistic competition :
Nature of firms : under perfect competition an industry consists of a large number firms each producing very small amount of the total output . The firm has not to determine the
Price , it is fixed by the industry. the firm has merely to adjust its out put at a given price.
No individual firm can influence the price of a commodity by its actions . though the
Number of firms is large under monopolistic competition it is limited . the more imperfect a market is the smaller becomes the number of firms in the market .firms are smaller In size ,yet they can influence the market price by their individual actions .every
Firm has to up the price of its product independently.
Nature of product : under perfect competition homogeneous goods are produced . from the buyers point of view the product of differs firms are perfect substitutes . in other words the cross elasticity of demand among the goods is infinite .
Under monopolistic competition ,firms produce differentiated products from the buyers point of view each variety of the commodity is a full
Fledged commodity in itself . goods produced by the different firms may be close
Substitutes , but not perfect substitutes The across elasticity of demand among the products is very small .
Level of output and price : Under perfect competition the size of output of firms is large . The price under perfect competition is lesser than under other market situations .At the equilibrium The marginal cost the marginal revenue the average cost and the average revenue all are equal . symbolically, MC=MR=AC=AR=price.
The level of the production of the individual firms and of the industry is less
Than optimum under the condition of monopolistic competition . the reason for the smaller output is that downward sloping demand curve (AR) does not touch average cost curve at the lowest cost point .the average cost is not the minimum at the equilibrium point therefore the level of output is also less than optimum.
A perfectly competitive firm under the condition of the long run equilibrium would have produced OQ level of output ;a monopolistic competitive firm restricts its output to OQ. The level of production for a monopolistic competitive firm in the long run equilibrium condition with same long run average cost by an amount equal to OQ.
Similarly a perfectly competitive firm would have sold its output at OH price per unit :a monopolistic competitive firm charge a higher price; it is selling its output in the equilibrium condition at QK price per unit.
Selling cost: In perfect competition homogeneous goods are sold at the uniform price,therefore the necessity of incurring selling cost does not arise .any amount of selling
Cost incurred on the homogenous goods will fail to attract more buyers.
Under monopolistic competition each firm products differentiated product . in order to find purchasers , the firm has to incur heavy expenditure on sales promotion activities .
The firms spend huge amount of money on publicity advertisements , show room ,etc., to attract larger number of the customers.
Economic welfare : the economic welfare is maximized under the conditions of perfect competition ideal level of production and low prices stimulate economic welfare .The consumers get enormous amount of the consumers surplus because price is equal to the marginal cost. Under perfect competition the industry gets larger economies of scale
And the optimal allocation of the resources also helps in the promotion of welfare . under
Perfect competition only the efficient firms can maintain their existence in the market therefore the wastage of the scare resources is minimized.
Under monopolistic competition the total of production is low and the price is higher than the marginal cost. The consumers get very little amount of consumers surplus .firms are of smaller size ,they do not get economies of scale ;therefore the cost of production is high .both efficient and inefficient firms can maintain their existence under monopolistic competition. The unprecedented waste and misuse of the resources minimise the economic welfare.
Innovation and researches
Under perfect competition firms get abnormal profits only in the short period during the short run the firms do not have sufficient time to undertake new discoveries and inventions . in the long run the firms have to go to contented with the normal profits
Therefore they hardly have any attraction or incentive for the inventions.
Under monopolistic competition every firm tries to attract as many buyers as it can to maximize its profits. The buyers can be attracted towards a particular commodity only when the commodity is a quality product .the firms are consistently busy in the new discoveries and inventions to improve the quality of the product.

Answers Answered By: kripa [387 Blue Star Level]
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