Final answer:
In a perfectly competitive market, firms are price takers and must accept the market price set by supply and demand. They optimize profits by adjusting output, not price. Profits are determined by the quantity produced and the equilibrium market price.
Step-by-step explanation:
A perfectly competitive firm is characterized as a price taker, which means it must accept the market price determined by the overall supply and demand for its product. Such firms cannot influence the market price due to their size; they are too small compared to the market as a whole. The market's equilibrium price forces a perfectly competitive firm to sell at that price. If a firm in this market attempts to increase its price even slightly, it would lose its customers to competitors who are charging the market rate.
The profit equation for a firm in a perfectly competitive market is essentially the product of the price and quantity produced, minus the total costs. As price is a given, the firm adjusts its output to maximize profits, considering its total revenue and total costs. The firm's decision on quantity to produce, alongside market prices for output and inputs, will lead to its total revenue and costs, thereby determining its profits.
For instance, a farmer selling raspberries would find that if the market price is $4 per pack, selling one pack yields $4 in revenue, selling two packs yields $8, and so on, regardless of the number of packs sold.