The Competitive Firm

- Price taker

- Market output (Q) and firm output (q)

- Market demand (D) and firm demand (d)

- R(q) is straight line
Demand and Marginal Revenue Faced by Competitive Firm

- The competitive firm's demand

• Individual producer sells all the units for $4 regardless of producer's level of output.
• If producer tries to raise the price, sales are zero.
• If producers try to lower the price he cannot increase sales
• P = D = MR = AR

- Profit Maximization

• MC (q) = MR = P