Similarities and Differences between Perfect Competition and Monopolistic competiton

The main similarities between perfect competition and monopolistic competition are: 

    

11)   There are large numbers of buyers and sellers.

  2)     There is freedom of entry and exit in the long run.

33)     Marginal Return (MR) =Marginal Cost (MC) principle of equilibrium.

44)   Normal profit in the long run in both markets.

55) Firms compete with each other in both markets.

t       The  main differences are:

Perfect Competiton                                                    Monopolistic Competition Products is homogenous                                           Products are differentiated yet  they are close                                                                                      substitutes of each other. Demand curve is perfectly elastic and thus             Demand curve is negatively sloped and thus firm is a price taker only.                                        firms have some power over price. Selling activities has no place in its                          Selling activities is an important policy vari- analysis.                                                                      able. There is no excess capacity because long                There is excess capacity as long run equilibr run equilibrium is always at minimum                   iuim is always at the falling part of LAC. LAC. The price is lower and output is larger than             Price is higher and output is lower than in per- In monopolistic competition.                                   fect competition. Optimum allocation of resources and thus               No optimum allocation of resources and thus   Welfare is maximized.                                               Welfare is not maximized.