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Bipina Poudel
3 years ago Grade -12 (NEB) > Management Economics

Differences between perfect competition and Monopoly

List out the differences between perfect competition and Monopoly.

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Bipina Poudel
3 years ago Answer Link CTEVT > Diploma/PCL > PCL In Medical Lab Technology Revised 2019

The major dissimilarities between perfect competition and monopoly  are as follows:

  1. Nature of product: Under perfect competition, products are homogenous while it is unique under monopoly.

  2. A number of the firm: Under perfect competition, there are large numbers of the firm under an industry. But in case of monopoly, there is only one firm under industry.

  3. Entry and exit condition: Firms have freedom to enter into or, exist from the industry under perfect competition. In the case of monopoly, entry is a complete barrier

  4. State of profit: In the long run, the firm can earn only a normal profit under perfect competition. But in case of monopoly, a firm can enjoy supernormal profit even in the long run.

  5. Price: Monopolists can restrict output and thus, raise the price, which is not possible under perfect competition. Hence, monopoly price is generally higher than the price under perfect competition.

  6. Demand curve: Firm under perfect competition faces a perfectly elastic demand curve  ( AR=MR=P), implying that the firm cannot change the prevailing market price as they are simply the price taker. But monopolist faces a downward-sloping demand curve, which implies that price has to be reduced so as to sell more as monopolist is a price maker.

  7. Capacity utilization: Under Perfect competition, it is necessary for the firm to operate at the minimum point of the LAC curve, implying that plant size is optimally utilized. For a monopolist, It is necessary to operate at the minimum point of the LAC curve. Plant size is over-utilized, underutilized or optimally utilized depending on market condition.
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