Perfect Competition Vs Monopolistic Competition

1160 Words 5 Pages
Firms have characteristics that make them similar, and other characteristics that make them different from each other. With these characteristics, economists have broken firms into four different categories based on market structures. First of the four markets is a perfect competition market. One of the defining characteristics of this structure is that the firms can sell identical products, meaning there are many sellers of the same product. Because of this, each seller from each firm holds a very small portion of the overall market. Quite like perfect competition, monopolistic competition also has many sellers within its market. Though it differs from perfect competition because the firms in a monopolistic competition sell varied products. …show more content…
There are more products for customers to choose from at a lower price, than other market structures offer, creating more of a surplus for the firm. With this being said, the market has no influence on the price, they do not decide the price or sway it to be more. The only competition between firms is their prices, even though each firm is going to promote that they have the lowest prices. Because the products between firms are the exact same in the consumer’s mind, there is no need for advertising. Perfect competition markets, in the long run, tend to have normal, not economic, profits. This means that the firm has a very easy entry into the industry and a very easy exit. A good example of a perfect competition market is any agricultural firm, such as corn producers. Just as all other farmers bring in their crop to an agricultural market where they are priced and distributed to the public at the world-wide market …show more content…
With only one firm, the demand curve is similar to the market demand curve we were taught in the beginning of the semester. With an impossible entry into the industry, the firm has a very strong influence over price. The firm itself can decide at what price they want to sell their product, and how much of the product to sell, without completely disgusting customers from the product itself. Being the only firm, monopolies do not have to worry about advertising or creating new and innovative products for the public. In the long run, monopoly markets can earn economic profits, because other firms are not able to enter the market. An instance of a monopoly firm would be Cox here in Gainesville. If they were the only cable television company that the people of Gainesville had to choose from, we would have no choice but to have them as our cable company. Cox knowing they were the only firm, could charge whatever price they would want to because they have no competing companies to worry about customers switching

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