In this article, we will mainly focus on the ‘Differences between Perfect Competition and Monopoly‘. But first we take a look at the definitions to get a clear idea about these two markets.
What is monopoly? How is it different from perfect competition?
Perfect Competition market:
A market where a homogenous product is exchanged between the many buyers and many sellers through mutual competition is called market under perfect competition.
Monopoly market:
A market where a product is exchanged between many buyers and only one seller and there is no close substitute of the product is called monopoly market.
Difference between Perfect Competition Market and Monopoly Market
| Basis | Perfect Competition | Monopoly |
|---|---|---|
| 1. Market Condition | Under Perfect Competition, there are many sellers or firms. So, an individual seller or firm cannot influence market supply and market price. | Under Monopoly, there is only one seller or firm. So, the seller or the firm can influence market supply and market price. |
| 2. Demand Curve | Under Perfect Competition, the demand curve is a straight line parallel to the horizontal axis. | Under Monopoly, demand curve is downward sloping to the right. |
| 3. Supply Curve | Under Perfect Competition, supply curve of the firm is derived from the marginal cost curve of the firm. | Under Monopoly, supply curve of the firm cannot be derived from the marginal cost curve of the firm because here the concept of supply curve is not applicable. |
| 4. Equilibrium Condition | Under Perfect Competition, at the equilibrium point marginal cost curve must be upward rising. | Under Monopoly, at the equilibrium point marginal cost curve may be upward rising or may be downward sloping or may be horizontal straight line. |
| 5. Relationship among Price, MC and MR | Under Perfect Competition, at the equilibrium situation, Price (P), Marginal Cost (MC) and Marginal Revenue (MR) are equal i.e. P = MC = MR. | Under Monopoly, at the equilibrium situation, Price (P) is greater than Marginal Cost (MC) and Marginal Revenue (MR) i.e. P > MC and P > MR. |
| 6. Equilibrium amount of Production | Under Perfect Competition, equilibrium amount of production is greater than monopoly. | Under Monopoly, equilibrium amount of production is less than perfect competition. |
| 7. Equilibrium level of Price | Under Perfect Competition, equilibrium level of price is less than monopoly. | Under Monopoly, equilibrium level of price is greater than perfect competition. |
| 8. Profit earning | Under Perfect Competition, all the firms earn normal profit in the long run. | Under Monopoly, the firm may earn normal profit or more than normal profit in the long run, |
| 9. Price Discrimination | Under Perfect Competition, price discrimination is not possible. | Under Monopoly, price discrimination is possible. |
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