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: 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. Average Revenue = Marginal Revenue = Market Price
This, in turn, means the total revenue of the seller equals the market price multiplied by the number of units sold. Revenue = Price × Quantity
Short-Run Profit Maximization
Since the competitive seller cannot charge anything but the market price, it can only maximize profits or minimize losses by minimizing costs. However, in the short run, suppliers can only minimize variable costs, not fixed costs. There are 2 methods to determine at what output a seller would maximize profits or minimize losses: by comparing total revenue and total costs at each output level or
by increasing output until marginal revenue = marginal cost.