What are the different assumptions of a perfectly competitive market and a market with monopolistic competition?

The main characteristics of a perfectly competitive market include: (1) a very large number of small, price-taking firm; (2) a homogenous product is being sold; (3) there are no barriers to entry or exit; and (4) there is perfect knowledge of information.
On the other hand, the main assumptions of a market with monopolistic competition are: (1) there is a large number of small firms who have relatively free entry and exit into the market; and (2) there is product differentiation, as in there are physical/quality differences, location, services, and product image which could be differentiated between firms.

ZD

Related Economics IB answers

All answers ▸

Using the Keynesian AD/AS diagram, explain why an economy may be in equilibrium at any level of real output


Qd=420-30P. From this equation identify the slope of the demand function and calculate the price at 60 units.


What are the differences/similarities between perfect competition and monopolistic competition?


What are automatic stabilisers?