Final answer:
A perfectly competitive firm is a price taker that must accept the prevailing market price and decide on the quantity to produce to maximize profits. It is a small market player and therefore its production decisions do not significantly affect market prices.
Step-by-step explanation:
A perfectly competitive firm operates in a market where it is considered a price taker, meaning it must accept the market price determined by supply and demand. This type of firm has little to no control over setting the price of its products. Instead, it focuses on determining the optimal quantity to produce, which is its primary decision-making factor. If such a firm were to increase its prices even slightly, it could lose all its business to competitors, as there are many other firms offering the same goods. A competitive firm is typically a small player within the market and therefore its production decisions do not significantly impact the overall market quantity or price.
The essential action for a perfectly competitive firm is thus to decide what quantity to produce by analyzing its potential profits. This decision is based on the intersection of marginal cost and marginal revenue, aiming to produce where they are equal. This is the point where a firm maximizes its profit. To stay informed about market conditions, suppliers such as wheat growers frequently check updates on pricing through mediums like computers or radios to adjust their production levels accordingly.