• Single Firm= small fraction of total output. Hence they are price-takers as they cannot influence market price
• MANY firms TOGETHER can affect market price by changing industry output
  • Graphically - perfectly elastic demand for single firm - horizontal line. ONLY ONE MARKET PRICE

- market demand for entire industry - downsloping curve. Firms can choose to produce at different market prices
- If price changes at all it drastically affects quantity purchased

i.e. price > equilibrium price causes quantity to go to zero and vice versa

• A perfectly elastic demand means that the firm can produce as much as they want at that price and it will still be sold. Purchasers will be willing to buy any quantity at that price.

• Average Revenue (AR) schedule = demand schedule
  • Price per unit to buyer = revenue per unit to seller
  • average revenue=price

• Total Revenue (TR)= Price x Quantity (increases by constant amount – constant price)
  • TR = P x Q
    • Straight upward sloping line – constant slope (= price)
    • The area formed by the rectangle with coordinates (0,0), (0,P), (0,Q), (P,Q)

• Marginal Revenue (MR) = Change in Total Revenue from selling ONE additional unit of output. Same as price.
  
  • MR = ∆ TR from selling 1 more unit of output = price
  The reason MR=D=AR=P is because in a purely competitive firm the price carries over from the industry and thus that equals the demand. At this demand each additional output increases by he same degree and the average revenue at any point is the same price.
• Even with changes in the marketplace, the line may move vertically but the values will always be equal
• Price line is the same as the average revenue or marginal revenue since the price is fixed

• Graphs
  • MR = AR = Demand = Price (represented by the horizontal line)
  • This is because firms in a Purely Competitive Market are price-takers in that they MUST go with the industry equilibrium price (which is the intersection of S and D curve)