The Model of the Kinked Demand Curve in Price Competition

question 15

Multiple Choice

The model of the kinked demand curve in price competition implies that:

• A) strong brand loyalty by consumers gives firms little incentive to reduce prices.
• B) free entry in the market will eventually reduce economic profits to zero.
• C) a firm's competitors will match any price cuts by the firm but not price hikes.
• D) firms will coordinate prices so as to maximize group profit.
• E) firms in the market match the market price set by a single dominant firm.

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