If the price of the product increases for every unit sold, then total revenue also increases. If you increase the number of units sold at a given price, then total revenue will increase. Total revenue is going to increase as the firm sells more, depending on the price of the product and the number of units sold. 6 Marginal Cost and the Firm’s Supply Curveĭetermining the Highest Profit by Comparing Total Revenue and Total Cost Ī perfectly competitive firm can sell as large a quantity as it wishes, as long as it accepts the prevailing market price.

5 Short-Run Outcomes for Perfectly Competitive Firms.3 Profits and Losses with the Average Cost Curve.2 Comparing Marginal Revenue and Marginal Costs.1 Determining the Highest Profit by Comparing Total Revenue and Total Cost.When the perfectly competitive firm chooses what quantity to produce, then this quantity-along with the prices prevailing in the market for output and inputs-will determine the firm’s total revenue, total costs, and ultimately, level of profits. It implies that the firm faces a perfectly elastic demand curve for its product: buyers are willing to buy any number of units of output from the firm at the market price. This is already determined in the profit equation, and so the perfectly competitive firm can sell any number of units at exactly the same price. Since a perfectly competitive firm must accept the price for its output as determined by the product’s market demand and supply, it cannot choose the price it charges. To understand why this is so, consider a different way of writing out the basic definition of profit: Determine the price at which a firm should continue producing in the short runĪ perfectly competitive firm has only one major decision to make-namely, what quantity to produce.Identify profits and losses with the average cost curve.Calculate profits by comparing total revenue and total cost.By the end of this section, you will be able to:

Cost curve perfect competition shift