Difference between Perfect Competition and Monopoly

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The basic difference between Perfect Competition and Monopoly is that perfect competition involves a large number of sellers with a large number of buyers whereas monopoly market has one single seller for a large number of buyers.

To know the difference between these two, we must clear the meaning of these terms:

Meaning of Perfect Competition:-

It refers to the market in which there are many firms selling a certain homogenous product.

In other words, in this type of market, there are many buyers and sellers of a homogenous product. A single firm or seller cant decide the price of the product. Consequently, the market forces like demand and supply determine the price level. Also, the individual firms or sellers are price takers in this market as they have no control over the price.

Meaning of Monopoly:-

Monopoly market is a market structure in which a single firm is a sole producer of a product for which there are no close substitutes available in the market. Since there’ is only one seller in the market, it eliminates the rivals and direct competitors. Therefore, the monopolist has full control over its price. Hence, the seller in this market is not known as a price maker. The seller, by itself, determines the price and the quantity to be sold by him in the market.

Since this market consists of a single seller, It abolishes the difference between firm and industry. Hence, it is clear that the firm or market means the same in this market. Example: Railways in India are a monopoly industry of Government of India.

Chart of Difference between Perfect Competition and Monopoly:

Basis of Difference Perfect Competition Monopoly
Meaning

It refers to the market in which there are many firms selling a certain homogenous product.

Monopoly market is a market structure in which a single firm is a sole producer of a product for which there are no close substitutes available in the market

Output

Price is equal to the marginal cost at the equilibrium output. Price is greater than the average cost at equilibrium output.
Equilibrium  It is possible only when MR=MC and MC cut the MR curve from below. Equilibrium can be realized whether the MC is rising, constant or falling.

Barriers for entry of new firms

Here, there are no restrictions or barriers for new firms to enter the market. It has strong restrictions for entry of new firms in the market.

Price Discrimination

There is no price discrimination by sellers as the prices are determined by supply and demand forces. The monopolist can charge different prices from different groups of buyers.

Supply Curve

Here, the supply curve can be identified as all firms sell the desired quantity at the prevailing price. In a monopoly, the supply curve cannot be known because of price discrimination.

Control over Price

Here, the sellers don’t have any control over the price. In this market, the seller has full control over the price.

Sellers are known as

In this market, the sellers are known as price takers. In this market, the sellers are price makers.

Degree of Competition

This market has strong competition in the market. There is no competition in the market.

Close Substitutes

In this market, the close substitutes are available.  There are no close substitutes of the products in this market.

Number of sellers

There are a large number of sellers with a large number of Buyers offering homogenous products. There is only one single seller of a commodity with a large number of buyers.


Download the chart:-

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Difference between Perfect Competition and Monopoly

 

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Difference between Perfect Competition and Monopoly

Conclusion:

Thus, these both market structures have their own assumptions and the demand and supply depend upon the price and output by sellers.

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