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Say a monopolist knew that at the current price for its product demand is inelastic. If marginal costs for this firm are zero
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Answer #1

Answer. Option B is correct.

This is because a monopoly firm maximize the profit at MR=MC. Given the MC of firm is 0, it should produce the level of output where MR is also zero. However, it is given that demand is inelastic which means MR is negative. So, firm should reduce the output to produce at point where MR and MC are zero.

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