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: Pure Competition
Pure Competition
A perfectly competitive market is rare, but those that exist are very large, such as the markets for agricultural products, stocks, foreign exchange, and most commodities. Pure competition also offers a simplified economic market model that yields useful insights into the nature of competition and how it provides the greatest value to consumers. Perfectly competitive markets have 4 essential qualities: large number of firms supplying the product
standardized or homogeneous products
low entry and exit costs for firms entering or leaving the industry, and
for any market for which the above qualities are true, then suppliers are price takers in that no individual supplier has any influence on the market price
A competitive market exists because the product is standardized or homogeneous and the costs to enter or leave the industry are low, allowing many firms to compete in supplying a product or service. A high barrier to entry would otherwise limit the number of suppliers in the market. 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.