In a perfectly competitive market, firms are considered to be what kind of entities in terms of price?

In a perfectly competitive market, firms are classified as price-takers. This characterization arises from the nature of perfect competition, where numerous firms sell identical or homogeneous products, and no single firm has the market power to influence the price. Instead, firms must accept the market price determined by the overall supply and demand dynamics.

Since each firm produces a relatively small quantity of the total market output, they do not have the ability to set or control prices. If a firm attempts to charge a higher price than the market equilibrium, it will lose all its customers to competitors offering the same product at the prevailing market price. Therefore, the only viable strategy for these firms is to produce where their marginal cost equals the market price, thus accepting the price as given by the market conditions.

This scenario highlights the efficiency of resource allocation in a perfectly competitive market, where prices are reflective of the marginal cost of production, ensuring that resources flow to their most valued uses.