The Theory of the Kinked Demand Curve Is That

question 176

Multiple Choice

The theory of the kinked demand curve is that

• A)although the firm sells a differentiated product, too many competitors exist to make it worthwhile speculating on responses to the firm's behavior.
• B)freedom of entry will reduce profits to zero.
• C)a firm's competitors will follow it in a price decrease but not follow it in a price increase.
• D)firms are all seeking the position of joint profit maximization.

---

Definitions:

Encoding Specificity Principle

The principle that recall is most effective when information available at the time of recall is similar to the information available at the time of encoding.

Depth-Of-Processing Principle

A concept suggesting that information that is thought about at a deeper, more meaningful level is more likely to be remembered than information processed at a superficial level.

State-Dependent Memory

The phenomenon wherein information learned in a particular state of mind is more readily recalled when in the same state.

Levels-of-processing

A theory suggesting that the depth of mental processing affects memory; deeper processing leads to better recall.