Compare and contrast monopolistic competition with monopoly.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Outside of their names, there is not much that is similar between these two market structures.

First of all, they have very different structures in terms of the number of firms involved.  Monopolistic competition involves a very large number of small firms competing with one another.  By contrast, there is only one firm and no competition in a monopoly.

Second, the products sold in the two market structures are different.  In monopolistic competition, firms sell differentiated products.  They are always trying to play up the differences between their products.  In a monopoly, there is only one firm, so it sells a unique product and does not need to differentiate it from anything else.

Finally, we can look at the barriers to entry.  In a monopoly, they are very high, which is why only one firm is in the market.  By contrast, there are very few barriers to entry in monopolistic competition, thus allowing many firms to enter the market.

It is true that firms in both of these market structures are not price takers, as they are in perfect competition, but that is not much of a similarity when put up against all of the differences mentioned here.

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