(i) A competitive market is a market in which there are many buyers and many sellers of an identical product so that each has a negligible impact on the market price.
(ii) Another type of market is a monopoly in which there is only one seller.
(iii) There are also other markets that fall between perfect competition and monopoly i.e. monopolistic competition.
Value: Analytic

(i) In the perfect competition, a firm is a price taker.
(ii) It has to sell its product at the same price as given (determined) by the industry. Consequently, price = AR = MR.
(iii) Hence, a firm's AR and MR curve will be a horizontal straight line parallel to X axis.
(iv) Since price remains the same, i.e., MR is constant, therefore, TR increases at the Constant rate as increase in the output sold.
(v) As the result of, TR curve facing a competitive firm is positively sloped straight line. Again, because at zero output Total Revenue is zero therefore, TR curve passes through the origin O as shown in the given figure.

(i) Products sold in the market are homogeneous, i.e., they are identical in all respects like quality, colour, size, weight, design, etc.
(ii) The products sold by different firms in the market are equal in the eyes of the buyers.
(iii) Since, a buyer cannot distinguish between the product of one firm and that of another, he becomes indifferent as to the firms from which he buys.
(iv) The implication of this feature is that since the buyers treat the products as identical they are not ready to pay a different price for the product of anyone firm. They will pay the same price for the products of all the firms in the industry. On the other hand, any attempt by a firm to sell its product at a higher price will fail.
To sum up, the "homogenous products" feature ensures a uniform price for the products of all the firms in the industry.

(i) Products sold in the market are homogeneous, i.e., they are identical in all respects like quality, colour, size, weight, design, etc.
(ii) The products sold by different firms in the market are equal in the eyes of the buyers.
(iii) Since, a buyer cannot distinguish between the product of one firm and that of another, he becomes indifferent as to the firms from which he buys.
(iv) The implication of this feature is that since the buyers treat the products as identical they are not ready to pay a different price for the product of anyone firm. They will pay the same price for the products of all the firms in the industry. On the other hand, any attempt by a firm to sell its product at a higher price will fail.
To sum up, the "homogenous products" feature ensures a uniform price for the products of all the firms in the industry.

The average revenue (AR) of a firm is defined as total revenue per unit of output sold. Let a firm's output be Q and the market price be P, then
TR equals P x Q. Hence,
AR = \(\frac { TR }{ Q } \)=\(\frac { P\times Q }{ Q } =P\)
In other words, for a price-taking firm, average revenue equals the market price.

(i) The supply curve of the firm tells us the quantity of the product that a firm is willing and able to produce and sell at each possible price.
(ii) The firm will produce and supply an output at the point at which Price is equal to Marginal cost. The derivation of the supply curve is explained with the help of the given figure.

(iii) The SMC of the firm is given. Let us initially assume that the market price is OP₁. The firm will produce and supply an output of OX₁ because at el' price = MC. (OX₁ is the equilibrium output supplied, as MC = MR and MC cuts MR from below).
(iv) Suppose the market price rises to OP₂, then the firm will produce and sell OX₂ level, because at e₂ level price = MC = MR.
(v) Similarly, as market price increases to OP₃, quantity supplied increases to OX₃ However, the firm will not supply any quantity if the price falls below OP.
(vi) At OP price, the firm will produce and sell OX output. For any price below OPthe firm will not produce and sell anything. The supply will be zero units. Having the above information, the supply schedule can be determined as,

(vii) If the market price falls below the minimum of the SAVC, the supply curve jumps to the small segment (OP) on the vertical axis at which there is zero supply. Therefore, two discontinuous [(OP) + (e'S)] pieces define the short run supply curve for the perfectly competitive firm.

(i) The supply curve of the firm tells us the quantity of the product that a firm is willing and able to produce and sell at each possible price.
(ii) The firm will produce and supply an output at the point at which Price is equal to Marginal cost. The derivation of the supply curve is explained with the help of the given figure.

(iii) The SMC of the firm is given. Let us initially assume that the market price is OP₁. The firm will produce and supply an output of OX₁ because at el' price = MC. (OX₁ is the equilibrium output supplied, as MC = MR and MC cuts MR from below).
(iv) Suppose the market price rises to OP₂, then the firm will produce and sell OX₂ level, because at e₂ level price = MC = MR.
(v) Similarly, as market price increases to OP₃, quantity supplied increases to OX₃ However, the firm will not supply any quantity if the price falls below OP.
(vi) At OP price, the firm will produce and sell OX output. For any price below OPthe firm will not produce and sell anything. The supply will be zero units. Having the above information, the supply schedule can be determined as,

(vii) If the market price falls below the minimum of the SAVC, the supply curve jumps to the small segment (OP) on the vertical axis at which there is zero supply. Therefore, two discontinuous [(OP) + (e'S)] pieces define the short run supply curve for the perfectly competitive firm.

Large number of sellers-
(i) The words 'large number' simply states that the number of sellers is large enough to render a single seller's share in total market supply of the product insignificant.
(ii) Insignificant share means that if only one individual firm reduces or raises its own supply, the prevailing market price remains unaffected.
(iii) The prevailing market price is the one which was set through the intersection of market demand and market supply forces, for which all the sellers and all the buyers together are responsible.
(iv) One single seller has no option but to sell what it produces at this market determined price. This position of an individual firm in the total market is referred to as price taker. This is a unique feature of a perfectly competitive market.
Large number of buyers-
(v) The words 'large number' simply states that the number of buyers is large enough, that an individual buyer's share in total market demand is insignificant, the buyers cannot influence the market price on his own by changing his demand.
(vi) This makes a single buyer also a price taker. To sum up, the feature "large number" indicates ineffectiveness of a single seller or a single buyer in influencing the prevailing market price on its own, rendering him simply a price taker.