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Monopoly And Perfect Competition: Two Extremes Of Market Structures

1963 Words8 Pages

1.0 Introduction
Monopoly and perfect competition represent two extremes of market structures, but there are some similarities between both of them. Both have the same objectives which seek to maximize monetary income. The shutdown decisions are same, and have perfectly competitive factors markets.
However, there are some differences. Price equals marginal cost and firms earn an economic profit of zero in perfect competition. In a monopoly, the price is set above marginal cost and the firm earns a supernormal profit. Economic efficient happen when firms produce an equilibrium in which the price and quantity of a good in perfect competition whereas monopolist produces an equilibrium at which the price of a good is higher and the lower quantity. Therefore, governments always seek to regulate monopolies by legislation.

2.0 Characteristic of Perfect Competition and Monopoly

Sloman and Hinde (2007) point out perfect competition is a market in the condition broad range of firms selling the identical product without any restriction on entry and exit and price taker at the same time. The perfectly competitive model is used to analyze the market and evaluate the efficiency of the other forms of market organization.
According to Sloman and Hinde, agriculture commodities such as vegetables, wheat and cotton are the example of the product in a perfect competition which has a large number of producers. Perfect competition has no market power to determine the market

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