Final answer:
The cost of a product in a purely competitive market is determined by the interaction of market demand and supply. Firms in such markets are price takers and in the long run, they make zero economic profit. Individual firm's demand is perfectly elastic, while industry demand has a downward slope.
Step-by-step explanation:
In a purely competitive market, the cost of a product is determined by both market demand and supply. The market structure is characterized by many sellers and buyers, a homogeneous product, easy entry and exit, and perfect information. These features mean that no single firm can influence the price of the product; they are price takers. Firms adjust their output so that the cost of producing the last unit (marginal cost) equals the market price. In the short run, firms can make a profit or loss but in the long run, the tendency is toward zero economic profit as firms can freely enter or exit the market.
The demand for an industry as a whole is relatively stable and downward sloping, representing the total quantity desired by consumers at various price levels. In contrast, the demand for a product from an individual firm in a perfectly competitive market is perfectly elastic at the prevailing market price because many other firms offer an identical product. For example, in an agricultural market selling a staple crop like wheat, no single farmer can set the price for wheat; it's determined by total market supply and demand.