For high levels of quantity supplied where firms have reached near maximum capacity, supply becomes more elastic because firms may need to invest in additional capital in order to increase production further.

True or False?

False

Explanation:

When firms have reached near maximum capacity, the price elasticity of supply is inelastic, or relatively inelastic.

This is because firms cannot respond quickly to changes in price even if they would like to take advantage of higher prices, produce more, and sell more. The reason is that if firms are near maximum capacity, in order to produce more, they have to actually expand capacity, for example, by building more production facilities, and this process takes time.

On the contrary, price elasticity of supply is elastic when firms have idle capacity: they can simply use those idle resources to produce more if prices rise.