Perfectly competitive market
-Many buyers and sellers (no one person or firm can effect price)
-Goods are similar to identical (seen as perfect substitutes; perfectly elastic)
-Firms can freely enter and exit the market
-Firms are "price takers" (market determines the price)
Total revenue divided by the quantity sold. (for firms in a PC market, AR=price of the good)
change in total revenue from an additional unit sold. (for firms in a PC market, MR=AR=P)
a firm will maximize profit by producing the quantity at which marginal cost is equal to marginal revenue.
rules for profit maximization
-if MR>MC, firm should increase its output
-if MC>MR, firm should decrease its output
-At the profit-maximizing level of output, MR and MC are exactly equal.