Final answer:
In a perfectly competitive market, a firm is a price taker because it must accept the market-determined equilibrium price and cannot influence it. Raising prices would cause such a firm to lose customers to competition due to the homogeneous nature of the products and the presence of many sellers.
Step-by-step explanation:
A firm that operates in a perfectly competitive market is considered a price taker. This is because such a firm has no control over the market price of the product it sells or the inputs it buys; market forces of supply and demand solely determine these prices. If a firm were to raise its prices even slightly, it would lose customers to competitors, since there are typically many sellers with identical products, making it easy for customers to find substitutes. A perfectly competitive firm must, therefore, accept the prevailing market price and sell its products at that rate.
The wheat grower example illustrates this concept well. An individual wheat grower checks the market price via computer or radio, indicating they have no influence over the price but must accept the market rate. A price taker's market position is a result of numerous sellers, identical products, and the easy entry and exit from the market. These conditions also lead to a long-run equilibrium where firms earn zero economic profits.