Perfect competition:

1. Show graphically how an individual firm attains equilibrium under perfect

competition.
An individual firm attains equilibrium under perfect competition when it has achieved the
following graph below. It could be done through this two method.

Firms can also attain equilibrium under perfect competition during short run and long run period
in the given situations below:
SHORT-RUN
LONG- RUN

2. Explain how the price and output is determined in perfect competition.

Under perfect competition, price and output is determined on the basis of consumer demand and
supply in the market.  It is at a point at which the demand and supply curve intersect each other.
This point is known as equilibrium point as well as the price is known as equilibrium price. In
addition, at this point, the quantity demanded and supplied is called equilibrium quantity.
Monopoly:
3. Distinguish between monopoly and perfect market.
In a monopolistic market, there is only one firm that dictates the price and supply levels of goods
and services, it exists when there is only one producer and many consumers. Monopolies are
characterized by a lack of economic competition to produce the good or service and a lack of
viable substitute goods. As a result, the single producer has control over the price of a good - in
other words, the producer is a price maker that can determine the price level by deciding what
quantity of a good to produce. While, in a perfectly competitive market, composed of many
firms, where no one firm has market control. There are many producers and consumers, no
barriers to enter and exit the market, perfectly homogeneous goods, perfect information, and
well-defined property rights. This produces a system in which no individual economic actor can
affect the price of a good - in other words, producers are price takers that can choose how much
to produce, but not the price at which they can sell their output.
4. Describe the pricing and profit determination under monopoly market.
Since there is just one solitary seller in a pure monopoly market, there is no difference between
the market demand curve and the demand curve for the firm’s product. The output of a pure
monopoly firm is the downward-sloping market demand curve that would be faced by an entire
competitive industry. For this reason, the monopolist’s pricing decision is inseparable from the
decision about how much to offer for sale. The higher the price it sets, the lower the quantity it
will sell. Also like a monopoly, a monopolistic competitive firm will maximize its profits by
producing goods to the point where its marginal revenues equal its marginal costs. The profit
maximizing price of the good will be determined based on where the profit-maximizing quantity
amount falls on the average revenue curve.
Monopolistic Competition:
5. How does the monopolistic competitor incur loss in the business? Explain with a
suitable graph.
Monopolistically competitive firms maximize their profit when they produce at a level where its
marginal costs equal its marginal revenues. Because the individual firm’s demand curve is
downward sloping, reflecting market power, the price these firms will charge will exceed their
marginal costs. Due to how products are priced in this market, consumer surplus decreases below
the pareto optimal levels you would find in a perfectly competitive market, at least in the short
run. As a result, the market will suffer deadweight loss. The suppliers in this market will also
have excess production capacity. If the average total cost exceeds the market price, then the
firm will suffer losses, equal to the average total cost minus the market price multiplied by
the quantity produced. Losses will still be minimized by producing that quantity where
marginal revenue = marginal cost, but eventually the firm either must reverse the
losses or be forced to exit the industry.
 6. What is the difference between monopoly and monopolistic competition?
Monopoly is a market structure where the participant is a single seller that dominates the overall
market as he is offering a unique product or service whereas a monopolistic competition is a
competitive market that has only a handful of buyers and sellers that offer close substitutes to the
end users while Monopolistic Competition is a state in markets whereby there are a handful of
sellers offering a particular product to consumers due to which minimal competition is created,
and variants in the characteristics and quality of products are available.
References:

Boundless. (n.d.). Boundless Economics. Retrieved October 06, 2020, from

https://courses.lumenlearning.com/boundless-economics/chapter/monopolistic-
competition/

Http://ljournal.ru/wp-content/uploads/2017/03/a-2017-023.pdf. (2017). doi:10.18411/a-2017-023

Monopoly vs Monopolistic competition: Top 9 Differences (Infographics). (2020, July 21).

Retrieved October 06, 2020, from https://www.wallstreetmojo.com/monopoly-vs-
monopolistic-competition/

Perfect competition is a market structure characterized by a complete absence of rivalry among

the individuals firms. Whether a firm makes abnormal profit or loss depends on the level of
AC in the short run equilibrium.  A firm in the long run can adjust their fixed inputs. In
perfect competition, there are a large number of buyers and sellers in the market. (n.d.).
Retrieved October 06, 2020, from https://www.kullabs.com/class-12/economics-1/theory-
of-price-and-output-determination/price-and-output-determination-under-perfect-
competion
The Equilibrium of the Firm under Perfect Competition – Explained! (2014, April 18). Retrieved
October 06, 2020, from https://www.yourarticlelibrary.com/economics/perfect-
competition/the-equilibrium-of-the-firm-under-perfect-competition-explained/37112