The distinguishing features of prefect competition and monopolistic competition. Give at least one example of a firm in each of this market?

 Features of Perfect Competition

 1. Large number:

perfect competition, there must be large number of buyers and sellers. Each buyer buys a small quantity of the total amount. Each seller is so large that no single buyer or seller can influence the price and affect the market.

 2. Homogeneous product:

Under perfect competition, the product offered for sale by all the seller must be identical in every respect. The goods offered for sale are perfect substitutes of one another. Buyers have no special preference for the product of a particular seller. No seller can raise the price above the prevailing price or lower the price below the prevailing price.

 3. Free entry and exit:

Under perfect competition, there will be no restriction on the entry and exit of both buyers and sellers. If the existing sellers start making abnormal profits, new sellers should be able to enter the market freely. This will bring down the abnormal profits to the normal level.

4. Perfect knowledge:

Perfect competition implies perfect knowledge on the part of buyers and sellers regarding the market conditions. As a result, no buyer will be prepared to pay a price higher than the prevailing price. Sellers will not charge a price higher or lower than the prevailing price.

 5. Perfect mobility of factors of production:

The second perfection mobility of factors of production from one use to another use. This feature ensures that all sellers or firms get equal advantages so far as services of factors of production are concerned.

 6. Absence of transport cost:

Under perfect competition transport, cost does not exist. Since commodities have, the same price it logically follows that there will be no transport cost.

 7. No attachment:

There is no attachment between the buyers and sellers under perfect competition. Since products of all sellers are identical and their prices are the same a buyer is free to buy the commodity from any seller he likes.

 Examples of Perfect Competition

 Agricultural markets: are the closest representations of perfectly competitive markets. These are marketplaces which have a large number of vendors selling fruit, vegetables, and poultry - namely, identical produce. The prices of goods are competitive, and no single seller can yield an influence over the pricing. Consumers are free to pick any seller, depending upon their choice.

Important features of monopolistic competition

 

1. Existence of large number of firms:

 The first important feature of monopolistic competition is that there is a large number of firms satisfying the market demand for the product. As there are a large number of firms under monopolistic competition

 (2) Product differentiations:

 The various firms under monopolistic competition bring out differentiated products which are relatively close substitutes for each other. So their prices cannot be very much different from each other.

 (3) Some influence over the price:

 As the products are close substitutes of others any reduction of price of a commodity by a seller will attract some customers of other products. Thus with a fall in price quantity demanded increases. It therefore, implies that the demand curve of a firm under monopolistic competition slopes downward and marginal revenue curve lies below it.

 (4) Absence of firm's interdependence:

 Under oligopoly, the firms are dependent upon each other and can't fix up price independently. But under monopolistic competition the case is not so. Under monopolistic competition each firm acts more or less independently

 (5) Non-price competition:

 Firms under monopolistic competition incur a considerable expenditure on advertisement and selling costs so as to win over customers. In order to promote sale firms follow definite ‐methods of competing rivals other than price. Advertisement is a prominent example of non‐price competition.

 (6) Freedom of entry and exit:

 In a monopolistic competition it is easy for new firms to enter into an existing firm or to leave the industry.

 Monopolistic Competition Examples

 A very nice example for monopolistic competition is farmers: Farmers produce crops for the entire world population, but again they have different characteristics by virtue of things like size and quality.