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# Unit 6: Profit Maximization of a Purely Competitive Firm

## Introduction

What’s in This Chapter? In this chapter we discuss four types of industries, each with varying degrees of competition. A purely competitive industry is most competitive. A monopolistically competitive industry is very...

## Section 1: The Four Industry Types and the Four Characteristics of Pure Competition

The Four Industry Types An industry can be classified in one of four market types: 1. Pure competition. Pure competition is a market structure in which there are many competing firms selling identical products or services. Very...

## Section 2: Revenue, Costs, and Profit

Total Revenue A firm’s total revenue is equal to the price of the product times the number of products sold. For example, if you own a publishing company and you sell 100 books at \$14 per book, then your total revenue is...

## Section 3: Average Revenue and Marginal Revenue

Average Revenue Average revenue is revenue per product. For example, if your firm’s total revenue is \$200, and you are selling 100 products, then your average revenue is \$200 divided by 100, or \$2. Marginal Revenue...

## Section 4: Profit Maximization Using a Purely Competitive Firm’s Cost and Revenue Curves

Combining Revenue and Costs In the previous sections in this unit, we analyzed revenue curves. In order to calculate profit, we also need to know the firm’s costs. Using the revenue data and graphs from the previous...

## Section 5: Profit Maximization Using Data from a Table

Combining Revenue and Costs in a Table In the previous section, we analyzed profit maximization by studying graphs. In this section, we will analyze a purely competitive firm’s profit maximizing quantity based on data from...

## Section 6: Long-Run Output and Profit Determination

Profits in Pure Competition Because of the relative ease with which new firms can enter a purely competitive industry, it is unlikely that economic profits will be very high in the long run. In fact, economists say that for...

## Section 7: The Farming Industry

Characteristics of the Farming Industry The farming industry in the United States and other industrialized countries is very competitive. It is an example of an industry that is nearly purely competitive. Characteristics of the...