Reading 20: Monopolistic Competition and Oligopoly-LOS e 习题 2011, determine, demand, center, style

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Session 5: Economics: Market Structure and Macroeconomic Analysis
Reading 20: Monopolistic Competition and Oligopoly

LOS e: Explain the kinked demand curve model and the dominant firm model, and determine the profit-maximizing (loss-minimizing) output under each model.

 

 

Something that oligopolists will try to engage in with another firm in setting a higher price is called:

A) prisoner's dilemma.

B) high economic profits.

C) collusion.

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Collusion is when firms organize into an association to increase profits by controlling prices and output. Collusion can take place when an industry has a small number of competitors and high barriers to entry.

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

A) effectively sets the price in the market.

B) is the innovation leader in product development.

C) has a significant cost advantage over its competitors.

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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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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 decrease their prices.

C) less elastic because competitors will decrease their prices.

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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.

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

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

B) more elastic because competitors will increase their prices.

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

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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.

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