In a perfectly competitive market, what is the primary reason that firms are considered price takers, and how does this influence their decisions regarding market entry and exit in the presence of market failures?

In a perfectly competitive market, firms are considered price takers because there are many sellers offering identical products, which means no single firm can influence the market price. Since each firm sells a small portion of the total market supply, they must accept the market price set by the forces of supply and demand. This situation affects their decisions about entering or exiting the market; if firms see that they cannot cover their costs at the market price, they may choose to exit. For example, if a new bakery finds that it cannot sell its bread for more than its costs, it might shut down rather than continue losing money. Thus, the inability to control prices encourages firms to carefully evaluate their costs and market conditions before deciding to stay in or leave the market.