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Distinguish between Monopolistic Competition and Oligopoly

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  • Essay length: 1407 words
  • Submitted: 11/07/2002
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Distinguish between Monopolistic Competition and Oligopoly

Monopolistic competition is a market structure where a large number of small firms produce non-homogeneous products and where there are no barriers to entry or exit.

Within the market the large number of small firms, act independently from one and another. In addition, all the firms are short run profit maximisers and there is, as well, perfect knowledge within the market.

An example of a market under Monopolistic Competition Is the Hotel Trade.

The concentration ratios are low, and any power which a form within the market is relatively low.

Firms, which are monopolistic competition, are not price takers, like firms in perfect competition, but because there are a large number of firms, an increase in the price level of a good will lead to a large increase in the quantity demanded of the goods' substitute, in other words demand is relatively elastic.

In the short run, the cost curve diagram for a firm under monopolistic competition is the same as that for a pure monopolist. The firm has a downward sloping curve and profit maximises at output point Q and price level P (refer to figure

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