Since a competitive firm can sell all its output at the market price, it has only one decision to make: how much to produce. Should it produce all the output it can or should it produce at less than capacity?

        The competitive firm is price taker that works under a highly competitive environment. The cost of a competitive firm includes both variable cost and fixed cost. The total revenue shows the profit of a competitive firm that is calculated by multiplying the cost and price of the firm. The marginal cost of competitive firm shows the change in total cost due to change in total quantity. There is a various seller in a competitive market that is producing the homogenous product, and the entry and exit to such marker are free. The demand curve for a competitive industry is not perfectly elastic and it appears only that way to the individual competitive firms, as competitive firms must take the market price regardless of the quantity they produce. This is why the demand curve for such a firm is a horizontal line at a price set by the market. The marginal revenue of perfect competitive firm is equal to its price. Total revenue of competitive firm is what a firm earns by selling the output at that specific price. While the marginal cost changes in total cost by an additional unit of output.

    The competitive firm should produce the output at a point where its average revenue, marginal revenue, average cost, and marginal cost are equal to other. This is the point that shows the production capacity of a competitive firm.

Graph of Managerial Economics

What is MC at that rate of output?

    At the rate of output, MC is 60.

Discussion of Managerial Economics

        The total revenue of the firm is calculated by multiplying the price with quantity and the marginal cost is calculated by the change in total cost of the firm and then divided by change in quantity. The equilibrium-of a competitive firm takes place at a point where its price equals the marginal cost. Since the price is $60 then at the rate of output, the marginal cost is also $60.

Conclusions on Managerial Economics

        In a nutshell, the competitive firm is a price taker and it produces at a point where its marginal cost is equal its price. The price curve of a competitive firm is a straight line while its marginal cost is upward sloping.The marginal revenue and average revenue of competitive firm are equal its price.

References of Managerial Economics

Dwivedi, D. N. 2002. Microeconomics: Theory And Applications. Pearson Education India.

Economics Online. 2018. Perfect competition. http://www.economicsonline.co.uk/Business_economics/Perfect_competition.html.

Klein, Andreas. 2007. Comparison of the models of perfect competition and monopoly under special consideration of innovation. GRIN Verlag.

Koury, Ken. 2012. Monopoly Strategy. Lulu.com.

Mankiw, N. Gregory. 2011. Principles of Economics. Cengage Learning.

The Economic Times. 2018. Definition of 'Perfect Competition'. https://economictimes.indiatimes.com/definition/perfect-competition.