Final answer:
In a purely competitive market, a firm is a price taker because it contributes a negligible amount to the market's total supply and faces a perfectly elastic demand curve. This means it can sell its output at the prevailing market price without affecting the overall market prices or supply.
Step-by-step explanation:
A firm in a purely competitive market is considered a price taker. This is because such a firm supplies a negligible fraction of the total market and as a result, cannot influence market prices.
The quantity of output it chooses to produce can be sold at the market price without affecting the overall market supply and price.
The perceived demand curve for a perfectly competitive firm is perfectly elastic, meaning it can sell any quantity at the market price. Therefore, the firm's total revenue is calculated by multiplying this given market price by the quantity of output it decides to produce.
The firm's positioning as a very small player in a large market dictates that its pricing decisions are redundant; the equilibrium price is set by the interaction of overall market supply and demand, and not by individual firms.