Question

Contrast the output and pricing decisions of monopolistically competitive firms with those of perfectly competitive firms.

Short answer

When many types of businesses provide the same but not identical products, monopolistic competition occurs.

Price discrimination occurs when businesses act as corporate entities in terms of pricing and output decisions.

Step-by-step solution

Introduction.

Competitive advantage occurs when there are several firms in an industry providing similar and not identical products.

Unlike giant corporations, these firms have very little ability to limit stockpile or elevate price to increase profits.

Private enterprises typically attempt to separate their goods in order to attain above-market rates of return.

Explanation.

Competition necessarily requires four conditions: a large competitors, related but not perfectly interchangeable products, low entry barriers, and imperfect information.

Output and pricing decisions of monopolistically competitive firms. 

Monopoly occurs when businesses make pricing and outcome choices as if they are monopolies.

In other words, they will produce at the point in which the contribution margin equal to the marginal cost.

Profits of perfect competition firms may eventually be reduced by free market entry.