SIMILARITIES BETWEEN MONOPOLY AND MONOPOLISTIC COMPITITION

(1) Both in monopoly and monopolistic competition the point of equilibrium is at the equality of MC and
MR and the MC curve cuts the MR curve from below.
(2) In both, the demand curve (AR) slopes downward to the right and the corresponding marginal revenue
curve is below it.
(3) In both situations the equilibrium point is below the price line (AR).
(4) In both, there is excess capacity. In other words, the demand curve (AR) is not tangent to the long-run
average costs curve at its minimum point.
(5) In both market situations, the producer is a price-maker. He can raise or lower the price.
DIFFERNCES
(1) There is only one producer of a product under monopoly while there are a number of producers under
monopolistic competition.
(2) There is no difference between firm and industry under monopoly. The monopoly firm is the industry.
On the contrary, there are many firms in monopolistic competition and the industry is called a group.
(3) Only a single product is produced under monopoly and there is no product differentiation. Under
monopolistic competition every producer produces differentiated products. Products are similar but not
identical. They are close substitutes rather than perfect substitutes. They differ from one another in
design, colour, flavour, packing etc. As a result, there is product differentiation.
(4) There are no selling costs in monopoly because the monopolist has no competitor. However, when the
monopoly firm is established, the monopolist may spend some money on advertisement to acquaint the
consumers about his product. But he will spend on advertisement only once. On the other hand, due to
large number of firms and existence of competition among them, expenditure on selling costs is essential
under monopolistic competition.
(5) The monopolist can charge different prices from different customers for the same product and can
adopt the policy of price discrimination. But price discrimination is not possible under monopolistic
competition due to the presence of competitive element in it.
(6) There being no close substitutes of the product under monopoly, the demand for his product is less
elastic. Therefore, the demand curve of the monopolist is steep, i.e. less elastic. On the contrary, products
are close substitutes under monopolistic competition. As a result, the demand for the product of every
firm is more elastic and its demand curve is flat.

(7) The inference can be drawn from the above analysis that the monopoly price is higher than the price
under monopolistic competition. Moreover, the monopolist has more freedom in fixing the price for his
product than the monopolistic competitor.
(8) Firms can enter and leave the group under monopolistic competition in the long run because the
element of competition is present in this market situation. Since the monopolist has full control either
over the price or the supply, no firm can enter the monopoly industry.
(9) There being no fear of entry of new firms in monopoly, the monopolist earns super-normal profits
even in the long run; whereas firms earn only normal profits in the long run under monopolistic
competition because the firms can enter and leave the group

PERFECT COMPITITION VS MONOPOLISTIC COMPITITION.

Similarities
1. The number of firms is huge under perfect competition and monopolistic competition.
2. The freedom of entry and exit of firms is there in both the firms.
3. Firms compete with each other.
4. The break even point is established where marginal cost and marginal revenue are equated.
5. In both the market conditions, firms can earn super normal or abnormal profits and can also incur
short run loses. Whereas in the long run, firms earn only normal profits.

DIFFERNCES:-

1. In the market situation of perfect competition, each firm produces and sells a standardised
product so that no buyer has any likings for the commodity of any individual seller over others.
Alternatively, there is product disparity under monopolistic competition. The commodities may
be similar or more likely to each other however they are not identical. They are close substitutes.
They are diverse in the form, in the design, in the colour, in the flavour, packing etc. We can give
best examples of Cold Beverages like Pepsi and Coke for monopolistic competition.
2. Under Perfect Competition, price is determined by the influences of demand and supply for the
entire industry. Every firm has to sell its product at that price. It cannot influence price by its
solitary performance. It has to fiddle with its output to that price. Thus every firm is a price taker

and

quantity

adjuster.

Conversely, every firm has its own price policy under monopolistic competition. It cannot control
more than a diminutive segment of the total productivity of a product in a gathering.
3. Graphically, the demand curve AR of a firm is perfectly elastic under perfect competition and the
marginal
revenue
MR
curve
coincides
with
it.
As against this, the demand curve of a firm is elastic and downward inclining under monopolistic
competition and its corresponding MR curve lies below it. It entails that a firm will have to
reduce the price of its product to increase its sales by attracting some customers of its
competitors, provided latter do not reduce their prices.
4. Though the equilibrium stipulations of the two market conditions are the same yet there are
disparities in the price marginal cost relationship between the two. When under perfect
competition MC = MR, price also equals them since price AR = MR.
This is for the reason that, the AR curve is horizontal to the X axis. Since the AR curve inclines
downward to the left, the MR curve is below it under monopolistic competition. So price, AR >
MR = MC.
5. Another disparity amid the two market situations corresponds to their dimensions. In the long run
competitive firms are of the optimum sized and produce to their full capacity for the reason that
prior
AR
=
LMC
=
LAC
at
its
minimum.
But under monopolistic competition the firms are of less than the optimum size and possess
surplus capacity since the AR curve is downward inclining and cannot be tangent to LAC curve at
its minimum point. The firms equilibrium situation is Price AR = LAC > LMC = MR.
6. Yet another dissimilarity among the two with respect to selling cost. There is no problem with
regards to selling under perfect competition since products are standardised and hence no selling
costs. The firm can sell the ruling market price any quantity of its product.
Whereas under monopolistic condition, the product is diversified and selling costs are obligatory
to promote sales. They are incurred to influence a purchaser to buy one commodity in choice to
other.
7. The ultimate decision amid the perfect competition and monopolistic competition is that the
output of the firm under monopolistic competition is lesser and price is higher than under perfect
competition.