Difference between Perfect Competition and Imperfect Competition

This article will help you to learn about the difference between perfect competition and imperfect competition.

Difference between Perfect Competition and Imperfect Competition

1. In Perfect Competition there are a large number of firms which complete among themselves in regards to price. Where as in imperfect competition there is limited number of firms and there is competition only in regard to having target share in the limited demand for his product.

2. In Perfect Competition each individual firm controls only a small portion of the total market which is very insignificant. Each firm is a price-taker and quantity adjuster where as in imperfect competition individual firm is a price-maker because it has considerable influence on the supply of the commodity.

3. In Perfect Competition each buyer and seller has a perfect knowledge regarding the market situations. In case if a firm wishes to charge a higher price than the existing price prevalent in the market, there is fear that he may loose all his customers. But this is not the case in imperfect competition because of lack of knowledge and some sort of attachment towards the product and the firm.

4. In Perfect Competition the demand curve is horizontal to X-axis where as in imperfect competition demand curve slopes downwards. Both AR and MR slopes downward having a negative slope.

5. In Perfect Competition the marginal revenue is equal to average revenue, the marginal cost is equal to marginal revenue and average revenue both in short and long periods Therefore, at the point of equilibrium:

AR – MR = AC – MC

In Imperfect Competition the equilibrium of the firm is where MR =MC and AR = AC. Both MR and MC are more than AR and AC.