4 Marks Question

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Compare between monopoly and monopolistic competition.

Vidyadip · Accepted Answer

S. No Basis Monopoly Monopolistic Competition 1. Meaning Monopoly refers to a market situation where there is a single seller selling a product which has no close substitutes. Monopolistic Competition refers to a market situation in which there are large number of firms selling closely related but differentiated products. 2. Number of Sellers There is a single seller and the monopolist has full control over the supply. There are large number of sellers. So, a firm does not have much impact on activities of other firms. 3. Nature of Product There are no close substitutes of the product. So, there is no competition from new and existing products. Products are differentiated on the basis of brand, size, colour, shape etc. So, a firm is in a position to influence the price. 4. Entry or Exit There is restriction on entry and exit. So, a firm can earn abnormal profits in the long run. Although there is freedom of entry and exit but it is possible only for a competitive firm to enter or leave the industry. 5. Price Monopolist is a price-maker as firm and industry are one and the same thing. Firm is neither a price-taker nor a price maker but has partial control over price due to product differentiation. 6. Demand Curve Downward sloping demand curve is less elastic due to absence of close substitutes. Downward sloping demand curve is more elastic due to presence of close substitutes. 7. Selling Cost Low selling costs are incurred. Heavy selling costs are incurred on sales promotion.

		(Rs. crores)
(i)	Rent	200
(ii)	Net current transfers to abroad	10
(iii)	National debt interest	60
(iv)	Corporate tax	100
(v)	Compensation of employees	900
(vi)	Current transfers by government	150
(vii)	Interest	400
(viii)	Undistributed profits	50
(ix)	Dividend	250
(x)	Net factor income to abroad	(-) 10
(xi)	Income accruing to government	120

Output (Units)	1	2	3	4	5	6	7
MC (₹)	2000	1500	1200	1500	2000	2700	3500

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S. No	Basis	Monopoly	Monopolistic Competition
1.	Meaning	Monopoly refers to a market situation where there is a single seller selling a product which has no close substitutes.	Monopolistic Competition refers to a market situation in which there are large number of firms selling closely related but differentiated products.
2.	Number of Sellers	There is a single seller and the monopolist has full control over the supply.	There are large number of sellers. So, a firm does not have much impact on activities of other firms.
3.	Nature of Product	There are no close substitutes of the product. So, there is no competition from new and existing products.	Products are differentiated on the basis of brand, size, colour, shape etc. So, a firm is in a position to influence the price.
4.	Entry or Exit	There is restriction on entry and exit. So, a firm can earn abnormal profits in the long run.	Although there is freedom of entry and exit but it is possible only for a competitive firm to enter or leave the industry.
5.	Price	Monopolist is a price-maker as firm and industry are one and the same thing.	Firm is neither a price-taker nor a price maker but has partial control over price due to product differentiation.
6.	Demand Curve	Downward sloping demand curve is less elastic due to absence of close substitutes.	Downward sloping demand curve is more elastic due to presence of close substitutes.
7.	Selling Cost	Low selling costs are incurred.	Heavy selling costs are incurred on sales promotion.

Non-Competitive Markets — Economics STD 12 Humanities & Commerce — Question

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