Reading 20: Monopolistic Competition and Oligopoly - LOS d price, black, demand, current, class

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1.The kinked demand model assumes that at prices above the current price, the demand curve becomes:

A)   more elastic because competitors will increase their prices.

B)   less elastic because competitors will not increase their prices.

C)   more elastic because competitors will not increase their prices.

D)   less elastic because competitors will increase their prices.

2.The kinked demand model assumes that below the current price, the demand curve becomes:

A)   less elastic because competitors will not decrease their prices.

B)   more elastic because competitors will not decrease their prices.

C)   more elastic because competitors will decrease their prices.

D)   less elastic because competitors will decrease their prices.

3.In the dominant firm model of oligopoly, it is least likely that one firm:

A)   is the innovation leader in product development.

B)   has a significant cost advantage over its competitors.

C)   produces a relatively large share of the industry's production.

D)   effectively sets the price in the market.

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答案和详解如下：

1.The kinked demand model assumes that at prices above the current price, the demand curve becomes:

A)   more elastic because competitors will increase their prices.

B)   less elastic because competitors will not increase their prices.

C)   more elastic because competitors will not increase their prices.

D)   less elastic because competitors will increase their prices.

The correct answer was C)

The kinked demand model of oligopoly behavior assumes that a firm’s competitors will not match a price increase, but will match the price of a competitor that offers a lower price. The result is a demand curve that is more elastic above the current price, but less elastic below it.

2.The kinked demand model assumes that below the current price, the demand curve becomes:

A)   less elastic because competitors will not decrease their prices.

B)   more elastic because competitors will not decrease their prices.

C)   more elastic because competitors will decrease their prices.

D)   less elastic because competitors will decrease their prices.

The correct answer was D)

The kinked demand model of oligopoly behavior assumes that a firm’s competitors will not match a price increase, but will match the price of a competitor that offers a lower price. The result is a demand curve that is more elastic above the current price, but less elastic below it.

3.In the dominant firm model of oligopoly, it is least likely that one firm:

A)   is the innovation leader in product development.

B)   has a significant cost advantage over its competitors.

C)   produces a relatively large share of the industry's production.

D)   effectively sets the price in the market.

The correct answer was A)

The dominant firm model of oligopoly is based on the assumption that one firm has a significant cost advantage which allows it to set the price in the market and control a relatively large share of the industry’s production and sales. It does not assume that the firm will be the innovation leader in product development. In fact, being more innovative is one of the factors that allow smaller competitors that work at a cost disadvantage to survive.

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