In perfect competition, firms have no price setting power so the price received is constant thus MR=AR=D. TR is upward sloping as the more units sold the higher the revenue.
Characteristics of Perfect Competition
-Many buyers and sellers
-No barriers to entry and exit
-Perfect knowledge
-Homogenous products
Short-run Perfect Competition
Supply and demand are at equilibrium and firms make SNP, but perfect knowledge means that firms are price takers so MR=AR=D=P
Long-run Perfect Competition
SNP attracts more firms to the market so supply increases causing prices to fall until only normal profit can be made
Why is MR=D=AR?
Firms are price takers because there is perfect knowledge in the market which makes demand perfectly elastic as consumers will know if they are being charge a higher price and switch
What happens to profits in the long run with perfect competition?
As SNP is being made in the market it attracts more firms to the market which causes supply to shift outwards until all SNP is competed away
