Pure Competition

Marginal revenue, marginal cost,
- It is more accurately than TR and TC rule
- It is applicable on the market models
  - Pure competition
  - Pure monopoly
  - Oligopoly
  - Monopolistic competition
- How to apply?
  - Intersection point of MR and MC curves
  - Determine cost and revenue areas
  - Perpendicular lines dropped on the axes to calculate cost and revenue
Conditions
- $P = AR = MR = D$
- $P = ATC$ or $TR = TC$ (Break-even)
- $P > ATC$ (average total cost)
- $P < ATC$
- $P = AVC$ (average variable cost)
- $p < AVC$

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TC = ATC * Q

TR = AR * Q

Second Case (profit)

Draw the marginal revenue and marginal cost curve
Marginal revenue curve should be above average cost curve
From the intersection of MR and MC, draw the perpendicular line on the quantity axis
Determine total revenue area (Rectangle’ area : length x width) ⇒ $OSEQ_2$
Determine total cost area which is equal to $OTCQ_2$
To calculate profit which is TR - TC, therefore the profit is $TSE_1C$

Third Case (loss)

Draw the marginal revenue and marginal cost curve
Marginal revenue curve should be below average cost curve
From the intersection of MR and MC, draw the perpendicular line on the quantity axis
Determine total revenue area (Rectangle’ area : length x width $OSE_1Q_1$
Determine total cost area which is equal to $OTCQ_1$
To calculate profit which is TR - TC, therefore the profit is $TSCE_1$

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