Question

The main similarity between perfect competition and monopolistic competition is that: both produce standardized products. both have many buyers. neither makes an economic profit in the long run both have few sellers

Answer 1

A monopolistic competitive firm

Since in the perfectly competitive firm, there are large number of buyers and sellers and they sell identical product and price is determined by industry and not by the firm. So any firm or any buyers can buy or sell any quantity of goods at the market price. It means there is no effect of the individual demand or supply of goods on the market price. It means production decisions cannot affect the market price.

A monopolistic firm is a maker and profit-maximizing condition is

MR=MC

A perfectly competitive firm

Since a monopolistic firm is that form of market in which there is large number of buyers and sellers and firm sells differentiated product based on quality, size, shape etc, therefore product is not homogeneous. Since firm is price maker but firm does not compete on the price but they compete in the market based on size, quantity quality etc.

A perfectly competitive firm profit-maximizing condition are;

P=MC

Since long-run profit-maximising condition for both perfectly competitive firm as well as monopolistically competitive firms are same;

P=AC=MC

Hence both firm earn zero economic profit in the long-run.

Both have large number of buyers.

Hence option second and third are correct answer.