Final answer:
A single firm in a perfectly competitive industry can't influence market price because its production is too small and other firms offer identical products, creating a perfectly elastic demand curve. As a price taker, it can only achieve maximum profits by producing where marginal cost equals marginal revenue.
Step-by-step explanation:
A single firm in a perfectly competitive industry cannot influence the market price because each firm's production level is too small to affect the market price. In a perfectly competitive market, many firms sell identical products, and the entry and exit of firms are relatively easy. This creates a situation where the individual firm is a price taker and must accept the market price.
The key characteristic of a perfectly competitive market is that it has a perfectly elastic demand curve. This means that firms can sell any quantity they wish at the prevailing market price, but they cannot charge a higher price because buyers have complete information and can easily switch to numerous other producers offering the same product. Thus, if a firm tries to increase its price, it would lose all its customers to competitors.
In essence, a firm cannot increase its profits by selling a higher quantity beyond its optimal production point, at which marginal cost equals marginal revenue. Beyond this point, the cost of producing one additional unit will be greater than the revenue gained from selling that unit, leading to reduced profits or even losses.