Perfect competition

Firms are atomic

All firms are small enough that one firm’s actions have no effect on other firms and very little effect on the total supply and total demand
The product is homogeneous

All firms sell the exact same product
Firms and consumers have perfect information

Both firms and consumers know the price in the market
Firms have equal access

All firms have access to the same technology
Firms have free entry

Firms can enter or exit the market at any time without incurring any cost

These are very strong assumptions!

These assumptions imply that all profit maximizing firms are price-takers in the market

Thought experiment 1: suppose a firm sets their price above the market price
- Equal access, atomicity, and homogeneous results in many other firms in the market who can sell the exact same product at the market price
Thought experiment 2: suppose a firm sets their price below the market price
- Then firms will be making less money than if they had priced at the market price, violating profit maximization