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| 1. |
Distinguish between perfect competition and monopolistic competition. |
| Answer» Solution :~Perfect Competition: The product is homogeneous, i.e. it is identical in all respects LIKE size, shape, quality, etc.Monopolistic Competition: The product is differentiated on the BASIS of brand, size, color, shape,etc.~Perfect Competition: No selling costs are incurred as buyers and sellers have perfect KNOWLEDGE about market conditions.Monopolistic Competition: Heavy selling costs are incurred on sales promotion due to lack of perfect knowledge among buyers and sellers.~Perfect Competition: Firm is a price taker as price is determined by the industry.Monopolistic Competition: Firm has partial control over price due to product differentiation.~Perfect Competition: Buyers and sellers have perfect knowledge about market conditions.Monopolistic Competition: Buyers and sellers do not have perfect knowledge due to product differentiation and selling costs incurred by sellers.~Perfect Competition: Demand curve is perfectly ELASTIC as price REMAINS the same at all levels of output.Monopolistic Competition: Demand curve slopes downwards as more output can be sold only at less price. | |