Final answer:
The statement that the optimal level of advertising is 0 for a perfectly elastic demand is true.
Step-by-step explanation:
The statement that the optimal level of advertising is 0 for a perfectly elastic demand is true. This is because in the case of perfect elasticity, the quantity demanded changes by an infinite amount in response to any change in price, meaning consumers are extremely sensitive to price changes.
The demand curve in this scenario is horizontal, indicating that any increase in price would lead to a loss of all demand. Therefore, advertising would have no effect on increasing demand, as consumers will only purchase the product at a specific price, and no higher, and quantity demanded is maximally responsive to price changes.
While perfectly elastic supply curves are largely theoretical, certain goods that can have their production easily expanded, like pizza or books, may exhibit high elasticity. Luxury goods, which take a large share of an individual's income and those with many substitutes like Caribbean cruises and sports vehicles, may also have highly elastic demand curves, albeit not perfectly elastic.