This is why firms within a perfectly competitive market are called “price takers.” Indeed, all firms face individual horizontal demand curves that are perfectly elastic, where the each firm's marginal revenue curve (MR curve) is the same as the average revenue curve. The characteristics of perfect competition imply that each firm has no market power to influence market price and simply takes the market price as it exists. The firm’s own demand curve is the market equilibrium price at any level of output. The vertical axis reveals these units are sold at a market price of $10 per unit. In the example below, the horizontal axis reveals an equilibrium quantity of 1,000 units are produced by a total of 50 firms, with each firm producing 20 units per period. The equilibrium market price occurs at the intersection of the market demand curve and supply curves, where the quantity demanded by the many consumers is equal to the quantity supplied by the many firms. The economic impact of a large numbers of buyers and sellers interacting in the perfectly competitive market can be analyzed using a traditional demand and supply curves. The overall market price determines the individual demand for each firm Ultimately, the long-run equilibrium occurs when each firm in the industry supplies a quantity that generates zero economic profits in the long run. Further, no barriers exist that would prevent any one firm from easily entering or exiting the market. Each buyer is fully informed about all potential alternative sellers. Each seller simply chooses a level of output that maximizes economic profits, given the existing price. As a result, no single buyer or seller can independently influence the market price. A perfectly competitive market is characterized by a large number of firms with identical production cost structures that are selling identical products or services to a very large number of consumers.
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