Monopoly Monopolistic Competition
(a) Equilibrium in both the market situations is obtained when the marginal revenue coincides with the marginal cost.
(b) Average revenue curve slopes down to the right in both instances and the corresponding MR curve lies below the AR curve.
(c) In both market situations the equilibrium of MR = MC lies below the price-line or demand line or AR line.
(d) Excess capacity is presence in both the market conditions.
(e) The producers set the price of their commodity in both situations.
The following are the differences between the two:
(a) In monopoly there is only a single seller while there are many sellers in monopolistic competition.
(b) There is no distinction between a firm and industry in the case of monopoly whereas under monopolistic competition there are numerous firms and their total collection is called the 'group'.
(c) Product differentiation is not found in monopoly while it is the main characteristic of monopolistic competition.
(d) Normally selling costs are absent in monopoly while such costs account for a large share of cost in monopolistic competition.
(e) Close substitutes are very rare in monopoly which makes the demand less elastic while in monopolistic competition products of various firms are close substitutes.
(f) Monopolist is free to fix any price of his choice. This freedom is of a restricted nature in monopolistic competition.
(g) Effective control of the firm over supply and price makes the entry of rival firms difficult. Contrary to this new firms can have easy access to the market in the case of monopolistic competition.
(h) A monopolist is free from the fear of potential competitors which affords it to earn excess profits even in the long period. The firm under monopolistic competition on the other hand can earn only normal profits as new firms may enter the market or old firms may leave the market according to changing conditions.