Each firm in a perfectly competitive market is a price taker; the equilibrium price and industry output are determined by demand and supply. Price-taking behaviour is central to the model of perfect competition. Perfectly competitive firms in general-have no reason to charge a price lower than the market price. Because buyers have complete information and because we assume each firm's product is identical to that of its rivals, firms are unable to charge a price higher than the market price. For perfectly competitive firms, the price is very much like the weather: they may complain about it, but in perfect competition there is nothing any of them can do about it. While a firm in a perfectly competitive market has no influence over its price, it does determine the output it will produce. In selecting the quantity of that output, one important consideration is the revenue the firm will gain by producing it.
1. Why can a firm not earn abnormal profits under perfect competition in the long run?
2. Under perfect competition the seller is price taker. How?