Consider a perfectly competitive market with equilibrium price $P_{eq}$ and quantity $Q_{eq}$ and firm with profit maximising quantity $Q_f$ as illustrated below:

enter image description here

I guess any firm in the market would have the same demand, marginal revenue and average revenue (or am I wrong?), but what about profit maximising quantity $Q_f$? It seems to depend on $MC$. Is $MC$ different for each firm?

  1. If so, then $Q_f$ is not necessarily the same for each firm?

  2. If not, why?

  • $\begingroup$ This part: "any firm in the market would have the same demand" is not clear to me. The industry faces demand, not individual firms. $\endgroup$
    – Giskard
    Aug 11 '16 at 14:46
  • $\begingroup$ @denesp The MR for each firm is equal to the equilibrium price determined by the market right? $\endgroup$
    – BCLC
    Aug 12 '16 at 3:29
  • $\begingroup$ In a competitive market? Yes. I don't see what this has to do with demand though. $\endgroup$
    – Giskard
    Aug 12 '16 at 7:59

In intro micro you usually assume that every firm in a perfectly competetive market has the same costs and production function etc. Hence, the MCs are the same for every firm. Under this assumptions, every firm will produce the same quantity in equilibrium.


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.