I have made several other posts about this topic, but all the answers I got confused me even more. This is my attempt at making a comprehensive post that highlights my confusion about perfect competition.
- “No individual firm can influence the market price”
This is highly confusing. The market price is the equilibrium price determined by market supply and market demand. Market supply and market demand are composed of individual supply schedules and individual demand schedules respectively. So given this, why would a change in an individual producer’s supply schedule not lead to a shift in the equilibrium market price? Here are some actual figures for a concrete example:
If producer K decided they would produce 2 cakes at all prices from 1 dollar to 10 dollars instead of just 1 cake, would this not change the overall quantity supplied curve, which would, in turn, change the equilibrium price?
- “Individual firms can sell ANY quantity at the market price”
How can an individual firm sell literally any quantity at the market price? I understand that it’s impossible for a producer to supply an infinite quantity, but even theoretically, how could there be an infinite quantity demanded for an individual firm when the market quantity demanded for the entire market (including the individual firm) is a finite number? Also, why would an individual producer not just produce the quantity that corresponds to the equilibrium price on their supply schedule? For instance, using the graph above, let’s say the equilibrium price is 5 dollars and I’m producer O. According to my individual supply schedule, I would be willing to make 1 cake at that price of 5 dollars. So why would I not just make 1 cake at the equilibrium price?