Answer to Question #26696 in Microeconomics for neha
Show that if Ed ≤ 1, then the optimal price and quantity of output are not well defined for a homogeneous product having no substitutes when it is sold by a single producer in market.
A homogeneous product is one in which a product sold by one firm is indistinguishable from the same product sold by another competing firm. Price taking occurs only in perfectly competitive markets. Therefore, identical goods sold at higher prices, by one firm will be above the equilibrium demand for goods, which means that the firm which raises price won't be able to sell any of their goods. The demand curve for the individual firm is horizontally flat, although the demand curve for the product on the entire market is negatively sloped. Firms that produce homogenous goods in perfectly competitive markets also cannot set price below equilibrium price because the firm will make a loss by selling below the cost of supply. This is why firms in competitive markets are called price takers Firms that can differentiate their products from others cease to be homogenous, and therefore can monopolize on their unique alteration of a product. They get to set their price to an extent. Almost all economic activity in a real economy takes place in a state of monopolistic competition. All monopolies are price setters but they do compete with close substitutes usually, which effects makes demand relatively more elastic.