Competitive Markets or Perfect Competition
Economics Revision Article Series
Under perfect competition there are many small firms producing an identical product. Also there are numerous buyers buying small quantities.
Under these conditions each producer faces a completely horizontal demand curve. There is a market price at which he can sell his entire produce and he cannot sell any of his items at a higher price.
Under such conditions, a profit maximizing firm will set its production at that level where marginal cost equals market price.
Paul Samuelson and William D. Nordhaus, Economics, 13th Edition, McGraw-Hill, 1989