Final answer:
The variable that tells us how many units a firm is willing to sell at any given price is the quantity produced, as firms in a perfectly competitive market face a perfectly elastic demand curve and can sell any number of units at the market price. The level of profits is determined by the quantity produced and the prevailing market prices for outputs and inputs, focusing on the relationship between price, average cost, and average variable cost.
Step-by-step explanation:
The variable that tells us how many units of a product a firm is willing to sell at any given price in a perfectly competitive market is determined by the quantity it decides to produce. Because a perfectly competitive firm must accept the market price as determined by demand and supply, it faces a perfectly elastic demand curve. This means the firm can sell any number of units at the market price without being able to influence the price itself. The firm's decision on the quantity to produce, along with market prices for output and inputs, will determine the firm's total revenue, total costs, and ultimately, its level of profits.
When analyzing the firm's profitability, we use the formula (Price)(Quantity produced) - (Average cost)(Quantity produced). If the firm's average variable cost of production is less than the market price, the firm can potentially earn profits, assuming fixed costs are excluded from consideration.