4 Marks Question

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Compare between perfect competition and monopoly.

Vidyadip · Accepted Answer

S. No Basis Perfect Competition Monopoly 1. Meaning It refers to a market situation where there are very large number of buyers and sellers dealing in a homogeneous product at a price fixed by the market. Monopoly refers to a market situation where there is a single seller selling a product which has no close substitutes. 2. Number of Sellers There are very large number of sellers and no individual seller has control over activities of other firms. There is a single seller and the monopolist has full control over the supply. 3. Nature of Product The products sold are homogeneous. So, buyers are willing to pay the same price for all products, which leads to uniform price in the market. There are no close substitutes of the product. So, there is no competition from new and existing products. 4. Entry and Exit Any firm can freely enter or exit from this kind of market. It leads to absence of abnormal profits and abnormal losses in the long run. There is restriction on entry and exit. So, a firm can earn abnormal profits in the long run. 5. Price Maker/ Taker In perfect competition, industry is price maker, firm is price taker because of homogeneous goods. Monopolist is a price-maker as firm and industry are one and the same thing. 6. Level of Knowledge Buyers and sellers have perfect knowledge about market conditions. Sellers and buyers do not have perfect knowledge. 7. Demand Curve Demand curve is perfectly elastic as price remains the same at all levels of output. Demand curve slopes downwards as more output can be sold only at less price. 8. Selling Cost No selling costs are incurred as buyers and sellers have perfect knowledge about market conditions. Selling costs are incurred for informative purposes due to lack of perfect knowledge.

Output (units)	Total Revenue (₹)	Total Cost (₹)
1	6	7
2	12	13
3	18	17
4	24	23
5	30	31

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S. No	Basis	Perfect Competition	Monopoly
1.	Meaning	It refers to a market situation where there are very large number of buyers and sellers dealing in a homogeneous product at a price fixed by the market.	Monopoly refers to a market situation where there is a single seller selling a product which has no close substitutes.
2.	Number of Sellers	There are very large number of sellers and no individual seller has control over activities of other firms.	There is a single seller and the monopolist has full control over the supply.
3.	Nature of Product	The products sold are homogeneous. So, buyers are willing to pay the same price for all products, which leads to uniform price in the market.	There are no close substitutes of the product. So, there is no competition from new and existing products.
4.	Entry and Exit	Any firm can freely enter or exit from this kind of market. It leads to absence of abnormal profits and abnormal losses in the long run.	There is restriction on entry and exit. So, a firm can earn abnormal profits in the long run.
5.	Price Maker/ Taker	In perfect competition, industry is price maker, firm is price taker because of homogeneous goods.	Monopolist is a price-maker as firm and industry are one and the same thing.
6.	Level of Knowledge	Buyers and sellers have perfect knowledge about market conditions.	Sellers and buyers do not have perfect knowledge.
7.	Demand Curve	Demand curve is perfectly elastic as price remains the same at all levels of output.	Demand curve slopes downwards as more output can be sold only at less price.
8.	Selling Cost	No selling costs are incurred as buyers and sellers have perfect knowledge about market conditions.	Selling costs are incurred for informative purposes due to lack of perfect knowledge.

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

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