SIMILARITIES BETWEEN MONOPOLY AND MONOPOLISTIC COMPITITION(1) Both in monopoly and monopolistic competition the point of equilibrium is at the equality of MC and MR and the MC curve cuts the MR curve from below.(2) In both, the demand curve (AR) slopes downward to the right and the corresponding marginal revenue curve is below it.(3) In both situations the equilibrium point is below the price line (AR).(4) In both, there is excess capacity. In other words, the demand curve (AR) is not tangent to the long-run average costs curve at its minimum point.(5) In both market situations, the producer is a price-maker. He can raise or lower the price.DIFFERNCES(1) There is only one producer of a product under monopoly while there are a number of producers under monopolistic competition.(2) There is no difference between firm and industry under monopoly. The monopoly firm is the industry. On the contrary, there are many firms in monopolistic competition and the industry is called a group.(3) Only a single product is produced under monopoly and there is no product differentiation. Under monopolistic competition every producer produces differentiated products. Products are similar but not identical. They are close substitutes rather than perfect substitutes. They differ from one another in design, colour, flavour, packing etc. As a result, there is product differentiation.(4) There are no selling costs in monopoly because the monopolist has no competitor. However, when the monopoly firm is established, the monopolist may spend some money on advertisement to acquaint the consumers about his product. But he will spend on advertisement only once. On the other hand, due to large number of firms and existence of competition among them, expenditure on selling costs is essential under monopolistic competition.(5) The monopolist can charge different prices from different customers for the same product and can adopt the policy of price discrimination. But price discrimination is not possible under monopolistic competition due to the presence of competitive element in it.(6) There being no close substitutes of the product under monopoly, the demand for his product is less elastic. Therefore, the demand curve of the monopolist is steep, i.e. less elastic. On the contrary, products are close substitutes under monopolistic competition. As a result, the demand for the product of every firm is more elastic and its demand curve is flat.(7) The inference can be drawn from the above analysis that the monopoly price is higher than the price under monopolistic competition. Moreover, the monopolist has more freedom in fixing the price for his product than the monopolistic competitor.(8) Firms can enter and leave the group under monopolistic competition in the long run because the element of competition is present in this market situation. Since the monopolist has full control either over the price or the supply, no firm can enter the monopoly industry.(9) There being no fear of entry of new firms in monopoly, the monopolist earns super-normal profits even in the long run; whereas firms earn only normal profits in the long run under monopolistic competition because the firms can enter and leave the group

PERFECT COMPITITION VS MONOPOLISTIC COMPITITION.

Similarities1. The number of firms is huge under perfect competition and monopolistic competition.2. The freedom of entry and exit of firms is there in both the firms.3. Firms compete with each other.4. The break even point is established where marginal cost and marginal revenue are equated.5. In both the market conditions, firms can earn super normal or abnormal profits and can also incur short run loses. Whereas in the long run, firms earn only normal profits.

DIFFERNCES:-

1. In the market situation of perfect competition, each firm produces and sells a standardised product so that no buyer has any likings for the commodity of any individual seller over others.

Alternatively, there is product disparity under monopolistic competition. The commodities may be similar or more likely to each other however they are not identical. They are close substitutes. They are diverse in the form, in the design, in the colour, in the flavour, packing etc. We can give best examples of Cold Beverages like Pepsi and Coke for monopolistic competition.2. Under Perfect Competition, price is determined by the influences of demand and supply for the entire industry. Every firm has to sell its product at that price. It cannot influence price by its solitary performance. It has to fiddle with its output to that price. Thus every firm is a price taker and quantity adjuster.

Conversely, every firm has its own price policy under monopolistic competition. It cannot control more than a diminutive segment of the total productivity of a product in a gathering.3. Graphically, the demand curve AR of a firm is perfectly elastic under perfect competition and the marginal revenue MR curve coincides with it.

As against this, the demand curve of a firm is elastic and downward inclining under monopolistic competition and its corresponding MR curve lies below it. It entails that a firm will have to reduce the price of its product to increase its sales by attracting some customers of its competitors, provided latter do not reduce their prices.4. Though the equilibrium stipulations of the two market conditions are the same yet there are disparities in the price marginal cost relationship between the two. When under perfect competition MC = MR, price also equals them since price AR = MR.

This is for the reason that, the AR curve is horizontal to the X axis. Since the AR curve inclines downward to the left, the MR curve is below it under monopolistic competition. So price, AR > MR = MC.5. Another disparity amid the two market situations corresponds to their dimensions. In the long run competitive firms are of the optimum sized and produce to their full capacity for the reason that prior AR = LMC = LAC at its minimum.

But under monopolistic competition the firms are of less than the optimum size and possess surplus capacity since the AR curve is downward inclining and cannot be tangent to LAC curve at its minimum point. The firms equilibrium situation is Price AR = LAC > LMC = MR.6. Yet another dissimilarity among the two with respect to selling cost. There is no problem with regards to selling under perfect competition since products are standardised and hence no selling costs. The firm can sell the ruling market price any quantity of its product.

Whereas under monopolistic condition, the product is diversified and selling costs are obligatory to promote sales. They are incurred to influence a purchaser to buy one commodity in choice to other.7. The ultimate decision amid the perfect competition and monopolistic competition is that the output of the firm under monopolistic competition is lesser and price is higher than under perfect competition.