Is monolistic competition closer to perfect competition?

Answer 1

Yes, although there are differences. One difference between monopolistic competition and perfect competition is the type of product. Perfect competition means that firms sell identical (or homogeneous) products. Firms in a monopolistically competitive industry sell products that are slightly different. Product differentiation may be based on product quality, customer support, variety, flavor, or other aspects of the product that matter to consumers. In both market structures, there are many buyers and sellers, perfect information, and free entry and exit. Also, economic profit is zero in long-run equilibrium, although only perfect competition results in an efficient outcome with minimum average total cost and marginal benefit equal to marginal cost. The other two market models, monopoly and oligopoly, both involve industries dominated by a single firm or only a few firms and there are probably barriers that prevent new firms from entering the industry to drive down profits.