Suppose a monopolist has zero marginal cost. If he faces a market demand curve with constant price elasticity of -2, the profit maximizing output level approaches infinity.
Answer the following statement true (T) or false (F)
True
Rationale: If demand is always price elastic, then an increase in output always results in an increase in revenue. In the absence of costs, this implies that, whatever quantity is being produced right now, the monopolist can always do better by producing more.
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