Final answer:
The price elasticity of demand for a perfectly competitive firm is perfectly elastic, meaning the firm can sell any amount of product at the market price without impacting that price. The firm is a price taker in the market, and its profits are determined by quantity produced and operational efficiency.
Step-by-step explanation:
The terms that best describe the price elasticity of demand facing a perfectly competitive firm would be perfectly elastic demand. In a perfectly competitive market, a firm is considered a price taker and can sell any quantity of its product at the prevailing market price without influencing the market price itself.
This unique situation is because there are many firms offering a homogeneous product, leading to the firm's demand curve being horizontal at the market-determined price.
For a perfect competitor, the profit equation is simply the difference between the price (determined by the market) and the average cost, multiplied by the quantity produced.
As opposed to a monopoly, which faces a downward-sloping market demand curve and can sell more output only by decreasing the price, a perfectly competitive firm's revenue and profits depend on its quantity produced and operational efficiency since the price remains constant no matter the quantity sold.