The Kinked-Demand Curve Model Helps to Explain Price Rigidity Because

question 213

Multiple Choice

The kinked-demand curve model helps to explain price rigidity because

• A)there is a gap in the marginal revenue curve within which changes in marginal cost will not affect output or price.
• B)demand is inelastic above and elastic below the going price.
• C)the model assumes firms are engaging in some form of collusion.
• D)the associated marginal revenue curve is perfectly elastic at the going price.

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Definitions:

Dividend Pricing Models

Financial models used to determine the value of a stock based on the dividends it is expected to yield, taking into account future dividends and the discount rate.

Intrinsic Value

The perceived or calculated true value of an asset, investment, or company, based on underlying characteristics and not market price.

Forecasted Cash Flows

Projected movements of cash in and out of a business, used for budgeting and financial planning.

Fixed Maturity

The predetermined date on which an investment, often a bond or other fixed-income security, matures and the principal is supposed to be repaid.