produce, then this quantity—along with the prices prevailing in the market for output and inputs—will

determine the firm’s total revenue, total costs, and ultimately, level of profits.

Determining the Highest Profit by Comparing Total Revenue and Total Cost

A perfectly competitive firm can sell as large a quantity as it wishes, as long as it accepts the prevailing market

price. The formula above shows that total revenue depends on the quantity sold and the price charged. If the

firm sells a higher quantity of output, then total revenue will increase. If the market price of the product

increases, then total revenue also increases whatever the quantity of output sold. As an example of how a

perfectly competitive firm decides what quantity to produce, consider the case of a small farmer who produces

raspberries and sells them frozen for $4 per pack. Sales of one pack of raspberries will bring in $4, two packs
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