Final answer:
A price-taking firm must accept the market price determined by the industry's demand and supply curves. It operates in a perfectly competitive market where it has no control over the price, as its product is identical to those offered by other firms, and even a slight price increase would result in a loss of sales.
Step-by-step explanation:
When a firm is a price-taking firm, the price of the product it sells is determined by the intersection of the industry demand and supply curves for the product. Such a firm is known as a perfectly competitive firm because it accepts the prevailing market price, which is out of its control. If a perfectly competitive firm attempts to raise its price above the market level even by a small margin, it will lose all sales to competitors. Products in perfectly competitive markets are identical, and the firms are price takers because there are numerous sellers, making the individual firm's demand curve perfectly elastic. Essentially, it implies that the firm can sell its product at the market price but cannot influence the price by adjusting its supply.
A perfectly competitive firm can neither influence the market price nor can it differentiate its products significantly. Moreover, any changes in the quantity supplied by an individual firm will not noticeably affect the overall market supply and equilibrium price. This market structure leads to a scenario where long-run equilibrium occurs after firms have entered or exited the industry, and economic profits for sellers in the industry have been minimized to zero.