What defines a competitive firm in economics?

A competitive firm in economics is defined as one that operates under conditions of perfect competition. In perfect competition, there are many buyers and sellers in the market, and no single firm has enough market power to influence the price of the product. Instead, firms are price takers, meaning they accept the market price determined by the overall supply and demand.

In this environment, products offered by different firms are homogeneous, and there is free entry and exit in the market. This means that if firms can earn a profit, other firms will enter the market, driving prices down until firms break even in the long run.

This concept contrasts with situations where firms hold significant pricing power, such as in monopolies or oligopolies, where a single firm or a small group of firms can influence prices due to a lack of competition. It is also distinct from regulated firms which may operate under government restrictions that influence their pricing and output decisions.