Answered Essay: Hello Please help with the following question? Think of an industry that


Please help with the following question?

Think of an industry that is close to being purely competitive and compare it with another industry of your choice that is monopolistically competitive. What are some obvious differences between the two?

Thank you

Expert Answer

Let us consider agricultural markets as the purely competitive one and the resturant industry as the example for monopolistic competition.The basic differences between perfect competition and monopolistic competition are indicated in the following points:

  1. In case of agriculture industry most sellers sell simialr goods to buyers because there is perfect competition. In case of restaurant industry, there are numerous restaurants serving close substitute food to the customers, therefore it is monopolistic competition.
  2. In perfect competition, like in agriculture industry, the product offered is standardised like crops, grains, etc. whereas in monopolistic competition as in the restaurant industry product differentiation is there. for example, one restaurant can offer thai food while the other can offer Indian cuisine.
  3. In agriculture industry , the prices are determined by the demand vs supply scenario. In restaurant industry, every restaurant offers dishes at its own price depending on the ingredient and many other costs involved in it.
  4. Entry and Exit are comparatively easy in perfect competition than in monopolistic competition.
  5. In perfect competition there is perfectly elastic demand while in monopolistic competition, the demand is relatively elastic.
  6. Average revenue (AR) and marginal revenue (MR) curve coincide with each other in perfect competition. Therefore to increase sales the demand needs to be increased. In monopolistic competition, average revenue is greater than the marginal revenue, i.e. to increase sales the restaurants have to lower down the prices in their menu.
  7. Perfect competition is an imaginary situation which does not exist in reality. Unlike, monopolistic competition, that exists practically.
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