Perfect competition versus Monopolistic competition

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There are a lot of chicken meat producers in the market. There is a significant increase for chicken meat producers time by time. All the typical chicken meat producers are earning zero economics profit. This scenario happened can interpret with the economics model, perfect competition. In perfect competition, all the typical competitors are earning the normal profit and there are few repeating steps in the process. There are several ways to escape from this. One of the methods is by applying the theories of monopolistic competition model in the market. Under monopolistic competition, non-price competition is the marketing technique which helps those typical producers to escape from perfect competition.

Perfect competition

In perfect competition, there are 4 main assumptions in the market: Price taker, freedom of entry, identical product and perfect knowledge.

There are a lot of firms competing in the chicken meat market. These firms are known as the price takers. Due to the large amount of firms, each firm is producing an insignificant small amount of the chicken meats in the entire market. They cannot control the price of the chicken meats in market. Another aspect would be the freedom of entry and exit, the existing chicken meat producer cannot stop new firms coming in. In addition, all firms selling identical or homogeneous products, in perfect competition; all the chicken meat producers are selling chicken meat. No branding or advertising is made in the perfect competition since the chicken meat producers are just selling chicken meat. On the other hand, both producer and consumer have perfect knowledge in perfect competition. As for the producer, the producer should be concerned of the price, cost and market opportunities; whereas, for consumers, they are fully aware of the quality, price and the availability of the products. (Sloman, 2006)

Short run and long run

In the short run of the chicken meat market, there is too little time for new firms to enter the industry. The number of chicken meat produced is fixed, depending on its cost and revenue; the firm will have different outcomes.  According to the law of demand and supply, as the demand is high but supply is low, price will increase. (Howlett, 1991)


Thus, the producers of chicken meat will manage to earn an economic profit in this period.

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Shaded area in above is the economics profit as the price or average revenue, is higher then the average cost.

In long run, the period of time is long enough for new chicken meat producers to enter the industry. (Howlett, 1991) As the news of this lucrative market soon spread, each day new chicken meat producers will appear in the market, each entering firm reducing the earnings of existing firms that produce chicken meat. (Sloman, 2006)

The new producers in the market causes the demand “curve” of each individual producer to shift downward, price, average revenue and ...

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