Question

A single firm in a perfectly competitive market is relatively small compared to the rest of the market. What does this means? "small" is "small"?

Answer 1

Perfect competition is a market structure where there are infinite number of buyers and sellers, producing homogeneous products. Both the buyers and the sellers in the market have perfect information about the product and market conditions, so the buyers make a rational choice.

A single firm cannot affect the market by increasing its price, as the goods sold are undifferentiated and any price increase would result into zero sale, as the rivals would take over. Thus, each seller in the market is a price taker.