1 minute read
Chapter 10: Monopoly: Decision-Making Without Rivals
Chapter 9: Limited Decision-Making in Perfect Competition
Thus the market-determined equilibrium price is $80.00. This is the price your firm must charge in a perfectly competitive market. If you charge $80.01, nobody will buy your product because they can purchase it from any one of a large number of other firms for $80.00. And you don’t want to charge $79.99, because you can sell everything you produce for $80.00. You have no need to settle for a penny less.
Advertisement
143
Total revenue equals price multiplied by the quantity sold, or
In this equation, P represents the commodity’s price as determined by supply and demand in the market. For a perfectly competitive market, this price is a constant — it doesn’t change regardless of the quantity of output produced by your firm. You must determine the quantity of output, q0, that maximizes your firm’s profit given the market price P.
In Figure 9-1, total revenue is illustrated as an upward-sloping straight line. Because your firm is a price taker in perfect competition, the slope of the total revenue function is a constant and corresponds to the market-determined price.
Figure 9-1:
Profit maximization with total revenue and total cost.
