Monopoly vs Perfect Competition

What is the difference between monopoly and perfect competition?

Expert Answers
poetrymfa eNotes educator| Certified Educator

Let's examine the significant difference between these two terms, which mark two extremes of market structure:

Perfect competition is a type of market that has many consumers and producers with no barriers to exit or entry into that market. The goods sold are perfectly homogenous (meaning that there is little quality difference between providers) with perfect information and well-defined property rights. No individual in this market can act in such an economic way that the price of a good is affected. Producers in this market choose how much to produce, but do not select the price point at which they sell, making them price takers; because of the homogenous nature of the products, producers cannot raise their product above the market rate and still locate a buyer.

A monopoly is a market in which there is only one producer and many consumers. There is no economic competition and no viable substitute goods, which results in the single producer having complete control over the price point at which their product is sold (the price maker). Buyers in this market are forced to accept rising prices because of the lack of alternatives present.

chauhan0007 | Student

Let us discuss two of them separately:

Perfect Competition:

In Perfect Competition, there are large numbers of buyers and sellers. The buyers have to sell their product at same price because of competition among them. And the goods sold in this market are identical. In term of economics, here price equals marginal cost at equilibrium output. Marginal revenue is the same as average revenue at all levels of output. Here, company makes only normal profit in the long run. Companies that are manufacturing same product and have to compete with other company to sell there product in market are examples of Perfect Competition.

Monopoly:

Monopoly is a type of imperfect market where there is only one seller while buyers are many. Here, Prices are decided by monopolist company. We can also say, monopoly is the opposite of perfect competition. Here, equilibrium price is greater than marginal cost since there is no other option for buyer to buy that commodity or product. Here, company can make high profits even in the long run. Here, price is higher and output smaller than under perfect competition. Companies like Google, Microsoft, Facebook are some of the example of monopoly.