A few people missing in this class, but not too manyStill on competition in markets.
In perfectly competitive markets, the industry sets prices, not individual firms. The industry will set prices based on supply and demand, and will naturally set the price at the supply/demand equilibrium point. Because each firm is such a small portion of the total production, each firmis able to sell its entire output, and no firm can change the equilibrium price by producing more or less.
In a perfectly competitive market, the average revenue and the marginal revenue are both equal to the price.
An individual firm in a perfectly competitive market will have output such that marginal revenue and marginal costs are equal. The firm will act to maximize total revenue, not marginal revenue.
It is possible for a firm in a perfectly competitive market to generate excess profit or take a loss in the short term. In the long run, a firm in a perfectly competitive market will not make excess profit, nor take a loss.