What is the difference between perfect competition and monopolistic competition?
A) Perfect competition has a large number of small firms while monopolistic competition does not.
B) Perfect competition has barriers to entry while monopolistic competition does not.
C) Perfect competition has no barriers to entry, while monopolistic competition does.
D) In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods.
E) In monopolistic competition, firms produce identical goods, while in perfect competition, firms produce slightly different goods.

Question

Quizplus · Accepted Answer

The main difference between perfect competition and monopolistic competition is that in perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods. In perfect competition, there are no barriers to entry, and a large number of small firms compete against each other. In monopolistic competition, there are some barriers to entry, such as brand loyalty or differentiation, and firms compete by offering slightly different versions of the same product. Barriers to entry also mean that monopolistic competition has fewer firms than perfect competition. Option A is incorrect because perfect competition has a large number of small firms, while monopolistic competition has a smaller number of firms. Option B is incorrect because perfect competition has no barriers to entry. Option C is incorrect because monopolistic competition has barriers to entry. Option E is incorrect because firms in monopolistic competition produce slightly different goods, while in perfect competition, firms produce identical goods.

What Is the Difference Between Perfect Competition and Monopolistic Competition