PURE COMPETITION

GROUP 1:
LEI BUENAFE REINNIER MARMETO GRACE LAMADRID CLARK BANZON

4 MARKET STRUCTURE:

PURE COMPETITION
A market characterized by a large number of independent sellers of standardized products, free flow of information, and free entry and exit. Each seller is a "price taker" rather than a "price maker".

CHARACTERISTICS OF PURE COMPETITON:

Very large numbers Standardized product Price takers Free entry and exit

DEMAND AS SEEN BY A PURELY COMPETITIVE SELLER

A purely competitive seller is a price taker, not a price maker.

PERFECTLY ELASTIC DEMAND

The firm represented cannot obtain a higher price by restricting, nor does it need to lower its price to increase its sales volume. An entire industry (all firms producing a particular product) can affect price by changing industry output. Its demand curve will plot as a straight horizontal line.

Average, Total, and Marginal Revenue

Price per unit to purchase is also revenue per unit, or Average Revenue. The Total Revenue for each sales level is found by multiplying price by the corresponding quantity the firm can sell. Marginal Revenue is the change in total revenue that result from selling 1 more unit of output.

DEMAND AS SEEN BY A PURELY COMPETITIVE SELLER

Product Price (P) Quantity Total (Average Revenue) Demanded (Q) Revenue (TR) Marginal Revenue (MR)

$131 131 131 131 131 131 131 131 131 131 131

0 1 2 3 4 5 6 7 8 9 10

0] 131 ] 262 ] 393 ] 524 ] 655 ] 786 ] 917 ] 1048 ] 1179 ] 1310

$131 131 131 131 131 131 131 131 131 131

DEMAND, MARGINAL REVENUE, AND TOTAL REVENUE IN PURE COMPETITION

1179 1048

TR

Price and revenue

917 786 655 524 393 262 131 0 1 2 3 4 5 6 7 8 9 10

D = MR

Quantity Demanded (sold)

Profit Maximization in the Short Run: TotalRevenue-Total-Cost Approach