Introduction

First of all, according to John Wiley and Sons (1995), perfect competition is kind of market structure that processed the following factors: each firm is so small compared to the market and the influence on price is elastic; the product is homogeneous; there are freedom changes of all resources which includes free entry and exits of firms in and out of the markets and there is perfect knowledge between the buyers and the sellers so buyers know what prices are all firms charging. A firm that is perfectly competitive usually operates at an output level where profit is maximized.

As for monopolistic competition, it has some features in common with perfect competition and monopoly. Three key factors can be described as monopolistic competition which is each firm has a little amount of market power because the firms are extremely competitive; firms can enter and exit freely of the industry if the level of profits is tempting and the profit is maximized. However, compare to monopoly, each of the firms is facing a downward sloping demand curve.

The contrast between perfect competition and monopolistic competition.

There are many similar features between perfect and monopolistic competition. Both perfect competition and monopolistic competition has large number of firms which are compete each other. They both have the freedom of entry and exit of firm since they are selling almost similar products to the consumers. The breakeven point is formed where marginal cost is equal to marginal revenue. In the both market conditions, firms can earn abnormal or super profits and also can incurred short run lose. As for long run production, firms only can earn normal profits.

Furthermore, both perfect and monopolistic competition can benefits the customer by pricing which is very competitive. Consumers are freely to compare the prices of the similar products and choose the best among of the all. Consumers are usually like to buy the product which is good in quality and affordable.

Comparison between perfect competition and monopolistic competition.

For instance perfect competition does not have the ability to affect the market price as they are price takers because price is determined by the demand and supply of the consumers or suppliers. It cannot affect the price by only performance. As for monopolistic competition, each of the firm has a very small degree of market price control. In addition, all firms have its own price policy which set by the government and they must follow the price of the goods that they got to sell to the consumers.

In the perfect competition, each firm produces and sells homogeneous products so that buyer does not have the chance of choosing for the commodity of any seller over others.  Other than that, there is product differentiation in monopolistic competition. The products may be similar but they are more to non-identical to each other or they can say to be close substitutes.

Perfectly and monopolistically competitive firms are free to enter and exit of the industry but for monopolistically competitive firms might have few restrictions but they are greatly unrestricted in terms of government rules and regulation, barriers to entry or even start-up cost. As for the perfectly competitive firms, they also not restricted but some case like firms that incurred high cost, they will need to get the permission from the government to enter the industry. The monopolistically competitive firms are not perfectly mobile as compared to perfectly competitive firms.

In monopolistic competition, buyers have perfect knowledge about the prices that set by the sellers. One firms cannot sells higher price of goods than others if not the consumers will change to other sellers as they are price elastic. All perfectly competitive firms must have the same production techniques or technology and they cannot produce goods better or faster with special knowledge. As for monopolistic competition, buyers do not know everything about the prices, but they have close information about alternative prices of other firms.