A market is competitive if each buyer & seller is small compared to size of the market & has little ability to influence market prices. Goal of this chapter = examine how firms make production decisions in competitive markets. As a background for this analysis, we begin by considering what a competitive market is. Market structure provides final element that is needed to derive supply curve. The rules of the game for exchange, after production has taken place. It places constraints on pricing behaviour of firms. Up until now, we still do not know what p & q the firm will select. Competitive market: a market in which there are many buyers and many sellers so that each has a negligible impact on the market price (price takers) A firm in a competitive market tries to maximize profit, which equals total revenue minus total cost (cid:1844)= (cid:1844) (cid:1843) (cid:1844)=(cid:1844)(cid:1843) =(cid:1842) (cid:1843)(cid:1843) =(cid:1842) (cid:1844) (cid:1843)=(cid:1844: total revenue = price x quantity.