Useful Notes on the Characteristics Similar to Perfect Competition and Monopoly

i) Large number of firms are present in the market. Each of the firms holds such an insignificantly small share of the entire market demand, that if one firm changes price or output, it will not create any impact on the other firms.

ii) There is no barrier to entry in or exit from the industry. Any firm willing to operate in this industry is free to do so. Similarly, any firm willing to go out of an industry can implement its decision without any delay and without experiencing any financial burden.

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iii) In case of perfect competition, we observe that products are homogeneous. But in case of monopolistic competition, each manufacturer offers a slightly different product than the others. This difference may arise from different brand names, differences in colour, shape etc.

As a result of this product differentiation, every firm is expected to have some brand loyal customers. This situation justifies negatively sloped (downward sloping) demand curve. Negatively sloped demand curve indicates that increase in price leads to decline in demand. The monopolists also face a negatively sloped demand curve.

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