Suppose a monopolist produces a positive level of output.If marginal costs are zero, this output level will occur where price elasticity of demand is exactly -1 unless there are recurring fixed costs.

Question

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A monopolist maximizes profit where marginal revenue equals marginal cost. If marginal costs are zero, the monopolist will produce where marginal revenue is zero, which occurs when the price elasticity of demand is -1, regardless of fixed costs.

Suppose a Monopolist Produces a Positive Level of Output