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Comparison between perfect competition and monopoly

The main aim of firms both under Monopoly and perfect competition is to maximize profit. In both the market forms, the firms are in equilibrium at the output level where MC = MR. The differences are as follows:

Differences between monopoly and perfect competition

1. Price

A firm under perfect competition is a price taker. It has to take the price which prevails in the market whereas a monopolist is a price maker.

2. Output

The firm under perfect competition produces output at the minimum point of the AC. The monopolist, on the other hand, produces at the falling part of its AC defined by the equality of MC with  MR. As such output is lower than a perfectly competitive firm's output under similar conditions.

3. Profit

A firm under perfect competition enjoys only normal profits in the long run but a monopolist normally enjoys supernormal profit even in the long run.

4. Revenue

A firm under perfect competition faces a horizontal revenue curve. The marginal revenue curve coincides with the average revenue curve. But in the case of monopoly, the AR curve is downward sloping, and the MR curve falls faster than the AR curve.

5. Cost

In the case of perfect competition, a firm cannot be in equilibrium on the condition of falling cost. Whereas a monopolist can be in equilibrium on the conditions of rising, falling, and constant cost.

6. Assumptions Regarding production

Under perfect competition it is that all firms produce and sell homogeneous products. A monopoly firm may or may not produce homogeneous products.

7. Number of sellers

Under perfect competition, there are large numbers of sellers of a homogeneous product. On the contrary, under Monopoly, there is only one seller.

8. Assumptions regarding entry

Under perfect competition, there is no restriction on the entry and exit of firms from the industry. In the case of the Monopoly, there is a restriction on the entry of new firms.

9. Implication regarding decisions

Under perfect competition, a firm can take decisions only in respect of the quantity to be produced. On the other hand, a monopolist can determine either the quantity of output or the price, but cannot determine both.

10. Difference between firm and industry

There is a large number of sellers or firms in perfect competition. So, there is a distinction between firm and industry. Since there is only one seller in Monopoly, there is no difference between a firm and an industry

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