The difference and similarities between monopoly and perfect competition (competitive equilibrium) are as follows:
(1) In monopoly, the firm is in equilibrium at that level of output where MR equals MC.
In perfect competition, the most profitable output is also at a point where MR is equal to MC.
(2) In monopoly, the AR and MR curves are negatively inclined i.e., a firm can sell more goods at lower and fewer goods at higher prices. The MR curve lies below the AR curve.
In perfect competition, the AR and MR curves facing competitive producer are perfectly elastic, i.e., it is a horizontal straight line. A firm cannot alter the market price by selling more or by selling less. The AR and MR curves are equal and therefore, coincide.
(3) In monopoly, the monopolist can earn super normal profits in the short as well as in the long period. The firm need not equate the AR to the lowest point of AC in the long run.
In perfect competition, the firm can earn abnormal profits in the short run but in the long run only normal profits are earned. The firm is in equilibrium when MR = MC = AR = Minimum AC in the long run.
(4) In monopoly, as the production of a commodity is in the hands of a single producer, therefore, a firm has control over the output and price of the commodity.
In perfect competition, the competitive producer has no control over the price of the commodity. It has to sell at the price determined by the intersection of the forces of demand and supply in the market.
(5) In monopoly, the single firm comprises the whole industry. The firm may not be of the optimum size. The possibility of the new firms to enter into the industry, is restricted.
In perfect competition, there are many firms comprising an industry. All the firms are of the optimum size in the long run. The new firms can enter the industry.
(6) In monopoly, the equilibrium price is higher than MC. The monopolist always tries to maximize profits by fixing the price higher than the competitive price. The consumers, therefore, have to pay a higher price and thus stand at a disadvantage.
In perfect competition, the equilibrium price is equal to MC. The entrepreneur charges the price which gives him the normal profit in the long run. So customers do not stand at a disadvantage.
(7) In monopoly, the monopoly firm is a price seeker.
In perfect competition, the competitive firm is a price taker.
(8) In monopoly, a monopoly firm is not a price taker. Hence, it cannot have a supply curve. It chooses output and price in a way that gives. It the highest possible profit.
In perfect competition, a competitive firm cannot exert any influence on the price. The firm is a price taker and so has a supply curve. The portion of MC curve above AVC curve is supplied.