The Assumption of Constant Costs of Production in the Classical

question 8

Multiple Choice

The assumption of constant costs of production in the Classical model results in a __________ production possibilities frontier, and, in the case of a "small" country, __________ specialization in production when trade takes place.

• A) linear; incomplete
• B) concave-to-the-origin; complete
• C) convex-to-the-origin; incomplete
• D) linear; complete

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Definitions:

Kinked Demand Curve

A demand curve in oligopolistic market structures characterized by a distinct bend or kink at the current price; it reflects that price increases by one firm will not be followed by others, while price decreases will be.

Price Cut

A reduction in the selling price of products or services, often used as a strategy to increase consumer demand or compete more effectively.

Elasticity

A measure used in economics to show how much the quantity demanded of a good responds to a change in the price of that good, expressed as a percentage.

Kinked-Demand Curve

A model that suggests prices tend to be rigid or stable because businesses will follow a strategy of matching price increases but not price decreases by competitors.