Though there is freedom of entry and exit of firms in perfect competition as well as in monopolistic competition , its impact is different in the two markets. Explain.
Freedom to entry and exit is a common feature in both the forms of market i.e. perfect competition and monopolistic but their implication is different.
Under perfect competition, in long run firms earn only normal profits so new firms does not enter or exit the market in long run. The firms in perfect competition do not earn supernrmal profits or losses in long run. It is only in short run that the firms enter or exit the market.
Under monoplistic competiton, firms enjoy the freedom of entry and exit from the market in both short run and long run. Since the products sold under monopolistic firms are highly differentiated. Therefore, firms are highly competitive in this form of market.
Under perfect competition, in long run firms earn only normal profits so new firms does not enter or exit the market in long run. The firms in perfect competition do not earn supernrmal profits or losses in long run. It is only in short run that the firms enter or exit the market.
Under monoplistic competiton, firms enjoy the freedom of entry and exit from the market in both short run and long run. Since the products sold under monopolistic firms are highly differentiated. Therefore, firms are highly competitive in this form of market.