Title: Pure Competition
Headings: Pure Competition
Pure Competition
Economics of a Purely Competitive Seller
Average Revenue = Marginal Revenue = Market Price
Revenue = Price × Quantity
Short-Run Profit Maximization
Total Revenue and Total Cost Approach
Marginal-Revenue — Marginal-Cost Approach
MR = MC = Market Price
Marginal Cost and the Short Run Supply

Content: Hence, there will be many suppliers for standard products as long as the market price is above the average total cost of supplying the products. The suppliers of a competitive market are price takers — they have no influence whatsoever on the market price because each supplier has only a tiny share of the total market. If some suppliers try to raise their price by even a few pennies, then consumers will simply buy from other suppliers. On the other hand, for the individual seller, market demand is completely elastic, so there is no reason for any supplier to sell even a penny less than the market price, since they can sell all that they want for the market price. For an industry, the market price declines with increasing supply, but for the individual firm, demand is perfectly inelastic, so the competitive firm can supply any amount of product without affecting the market price. Thus, the firm can maximize its own profits by supplying the amount when its marginal cost, which is the cost for producing an additional product, equals the market price. If the products were differentiated to some degree, then the market would be a monopolistic competition, by definition, which would allow some suppliers to charge a slightly higher market price if they can convince consumers, through advertising or other methods, that their product is worth the higher price. Economics of a Purely Competitive Seller
Few markets as a whole are perfectly elastic, where consumers would buy whatever quantity was supplied without affecting the market price. However, sellers in a purely competitive market see a perfectly elastic demand — they can sell any quantity of the product at the market price. This makes both the average revenue, which is the average price of all products sold, and marginal revenue, equal to the price of the last item sold, equal to the market price.