 Characteristics & Occurrence
 Presence of a large number of independently acting sellers
 Firms produce a standardized product. Therefore, as long as the price is the same, consumers are indifferent about which seller to buy from
 Individual firms have NO control over product price =
“price taker”
 New firms can freely enter and existing firms can freely exit the industry
Prof. Ana Corrales ECO 2023 Notes


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The demand curve of the competitive firm is perfectly elastic (E
∞) d
=
Because the purely competitive seller is a “price taker”, the going market price (P) is the demand curve (D) for that good or service
 The market price is given
The Demand & Revenue Schedules for a Purely Competitive Firm
(Table 23.2, Fig 23.1)


Because a purely competitive firm can sell additional units of output at the market price, its MR curve coincides with its perfectly elastic demand curve
In pure competition, P = MR
 Marginal Revenue = change in total revenue (extra revenue) resulting from selling one more unit of output
Prof. Ana Corrales ECO 2023 Notes


The segment of the firm’s MC curve that lies above the AVC curve is its SR supply curve (Fig 23.6)

The horizontal sum of all the firms’ individual supply curves determines the industry supply curve (Fig 23.7)
Prof. Ana Corrales ECO 2023 Notes

 The final L-R equilibrium position of all firms will have the same characteristics relating to economic efficiency
 Price will settle where it is equal to the minimum
ATC
 Since the MC curve intersects the ATC curve at its minimum point, MC = minimum ATC
 Fig 23.12
Prof. Ana Corrales ECO 2023 Notes

 1
 3 (complete Table + b)
Prof. Ana Corrales ECO 2023 Notes