Suppose a monopolist has marginal cost of zero but recurring fixed costs.Then the monopolist will produce the efficient level of output so long as he can first degree price discriminate.

Question

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With first degree price discrimination, the monopolist can charge each customer the maximum price they are willing to pay, which allows for efficient allocation of goods as the monopolist can sell to all consumers who value the good above the marginal cost of production (which is zero in this case). Therefore, the monopolist will produce the efficient level of output.

Suppose a Monopolist Has Marginal Cost of Zero but Recurring