Question

Define monopolistic competition. In what way does it differ from perfect competition?

Answer 1

Perfect competition is a form of the market in which there is a large number of buyers and sellers and where homogeneous product is sold at a uniform priceA price taker firm means that it has to accept the price as determined by the forces of market demand and market supply.Firm's demand curve under perfect competition is a horizontal straight line parallel to X-axis.Under perfect competition, AR is constant for a firm. Hence, AR = MR.

Monopolistic competition is a form of market in which there is a large number of sellers, selling differentiated product. Each firm has a partial control over price.