Describe the practices of firms that are in markets with perfect competition and in a monopoly.
Perfect competition is a term used to describe a market where there are many buyers and many sellers. As there is nothing that differentiates the products manufactured by one firm from that of another, buyers are free to shift from one seller to another. The price of goods in perfect competition is decided solely by the factors of demand and supply existing in the market. As no individual firm can influence the price, the only way in which it can increase profits is by increasing its operational efficiency.
In a monopoly on the other hand, there is only one seller. Buyers do not have a choice and have to accept the price offered by the firm. Firms that operate in these conditions can manipulate prices to maintain their profits and there is no necessity for them to increase operational efficiency.