• Determine the price at which a firm should continue producing in the short run

A perfectly competitive firm has only one major decision to make—namely, what quantity to produce. To

understand this, consider a different way of writing out the basic definition of profit:

Since a perfectly competitive firm must accept the price for its output as determined by the product’s market

demand and supply, it cannot choose the price it charges. This is already determined in the profit equation,

and so the perfectly competitive firm can sell any number of units at exactly the same price. It implies that the

firm faces a perfectly elastic demand curve for its product: buyers are willing to buy any number of units of

output from the firm at the market price. When the perfectly competitive firm chooses what quantity to

produce, then this quantity—along with the prices prevailing in the market for output and inputs—will
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