Chapter 10, Problem 1QP

To determine

Explain the differences between monopolistically market and competitive market.

Explanation of Solution

The monopolistic competition is a market structure that is characterized by the entry of a large number of firms into the market, no barriers to entry and exit product differentiation, and some control over price. The perfect competitive market is a type of market that is characterized by a large number of buyers and sellers in the market, free entry and exit in the market, and selling of identical products. Thus, the difference between the monopolistically competitive markets and competitive market is producing of differentiated product in a monopolistically competitive market.

If a monopolistically competitive firm earns the economic profit in the short run, then it will attract the new firms and decrease the individual firms’ demand until all the firms earn a normal profit in the market.

Economics Concept Introduction

Monopolistic competition: Monopolistic competition is an imperfect market structure that has a relatively large number of buyers and sellers in the market, differentiated products, some control over the market price, and a few barriers of entry and exit.

Perfect competition: The perfect competitive market is a type of market that is characterized by a large number of buyers and sellers in the market, free entry and exit in the market, and selling of identical products. The perfect competitive firm is known as price-takers because the price is determined by the forces of market supply and demand.