A major weakness of the kinked demand curve model of oligopoly is that ?
Correct answer: B. it fails to explain how a firm arrived at its price and output decision initially
- A. it assumes that firms believe that their rivals will not respond to any price change they initiate
- B. it fails to explain how a firm arrived at its price and output decision initially
- C. The model cannot be tested empirically.
- D. Real-world pricing strategies are more simple than those assumed in this model
Explanation
The kinked-demand model explains why prices may remain rigid after a firm has set its price, but it does not explain how the original price and output were determined. That missing price-setting explanation is its standard major weakness.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Microeconomics
Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
Practise Microeconomics
1,742 free Microeconomics MCQs from Economics, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Economics questions like this
Economics is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Microeconomics questions
Which of the following statements is False ?
The costs that depend on output in the short run are ?
Diminishing marginal return implies ?
An oligopoly with a dominant price leader will produce a level of output ?
A group of firms that gets together to make price and output decisions is called ?
Assume that firms in an oligopoly are currently colluding to set price and output to maximise total industry profit. If the oligopolists are forced to stop colluding, the price charged by the oligopolists will _________ and the total output produced will __________?