Compare and Contrast Perfect Competitive and Monopoly Markets

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Compare and Contrast Perfect Competitive and Monopoly Markets

Perfect competitive firms operate in markets where there is no control over supply, demand, and prices. Perfect competition has major characteristics that do not exist in monopolies, such as; many firms operating in the same market or sellers selling similar products, a high number of buyers with relevant product information in the market, and few or no existing barriers to both market entry and market exit. Monopoly firms and perfectly competitive firms have different decision-making processes, which include market price selection. Another difference is that they both differ when it comes to output decision and profit maximization processes. However, the markets share a shutdown decision-making process to avoid losses.

Monopoly firms and competitive firms differ in the market price setting decision where monopoly firms have the ability to set their own market prices or alter prices, unlike in perfect competition. Market entry barriers in monopolistic firms make it possible to set their own prices higher than perfectly competitive firms. Government regulations and technological advancements are the major hindrances that prevent new entrants in monopoly firms. On the other hand, perfectly competitive firms' decisions on their products' market price cannot be changed because it is a take price market. Prices set on products in perfect markets match existing market prices. Prices cannot be changed because people will move to other similar markets (Greenlaw et al., 2018).

Also, output decisions are different in both markets in that perfectly competitive markets consider market price to make more profit. If prices offered in the market result in marginal revenue being equal to marginal cost, perfect markets could produce more products. Because competitive firms cannot increase prices, they can only get more revenue by selling more products. In monopolies, an increase in output decision is determined by the market demand in the market from after which they then decide on the price to charge. According to Greenlaw

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