...Topic Question: Is monopolistic competition more efficient than perfect competition? A market is an economic environment in which buyers and sellers in an industry operate. There are four degrees of competition in the market: monopoly, oligopoly, monopolistic competition and perfect competition. As firm numbers rise from one single firm dominating the market in a monopoly to many small firms in perfect competition, the less influence an individual firm’s supply has on total supply and therefore on price because it competes with a large number of other firms. The basic model of perfect competition is based on five main assumptions. The first assumption is that a price taking behaviour exists for all parties meaning that they have to accept the market price and cannot influence it. This is due to the negligible effect each individual firm has on the market price due to its small market share. The second assumption is that the market is characterised by free entry and exit meaning that new firms can enter and exit the market without any restrictions on the process and thus, without incurring any special costs. Special costs would be costs that the new firms have to pay although the incumbents did not. Furthermore,...