Sticky Prices Are an Outcome of the Kinked Demand Model

question 4

Multiple Choice

Sticky prices are an outcome of the kinked demand model because:

• A) firms in an oligopoly will collude to hold prices fixed.
• B) marginal costs are constant in oligopolistic industries.
• C) marginal costs can vary to some extent, but firms will have no incentive to change their prices in oligopolistic industries.
• D) demand is perfectly elastic in oligopolistic industries.
• E) firms will set price equal to marginal cost in oligopolistic industries.

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Definitions:

Equal Percentage

A rate or proportion where the same fraction or share applies uniformly across different scenarios or entities.

Pure Monopoly

A market structure characterized by a single seller selling a unique product in the market, resulting in significant control over pricing and market supply.

Monopolistic Competition

A market structure where many companies sell products that are similar but not identical, allowing them some power to set prices.

Oligopoly

A distinct form of market where only a few companies have significant influence over industry prices and competition.