ABSTRACT
This chapter aims to develop the mainstream model of profit maximization in perfectly competitive industries. It sets out the assumptions behind the mainstream model of perfect competition. The chapter provides a graph or table to determine the profit maximizing level of output for a perfectly competitive firm in the short run, and to determine all relevant costs, revenues, and profits at that level of output. In a perfectly competitive market, the market supply curve and the market demand curve determine the market price. Perfectly competitive markets are easy to enter because there are only small economies of scale from specialization of laborers and machinery. The model of perfectly competitive markets underlies the supply and demand model, which is the cornerstone of mainstream economics. Large numbers of firms in perfectly competitive markets offer homogeneous products for sale at prices determined by market supply and demand.
