Question

a. The kinked-demand curve for oligopolists assumes that rivals will 

match price cuts and price increases. 

match price increases, but ignore price cuts. 

match price cuts, but ignore price increases. neither 

match price cuts nor price increases. 

b. There is a gap in the oligopolist's marginal-revenue curve because 

price drops abruptly. 

the cost of production changes abruptly. 

the slope of the demand curve changes abruptly. 

price rises abruptly. 

c. The kinked-demand curve explains price rigidity in oligopoly because 

firms expect any change in price will lower revenue and profits. 

firms agree to a given price. 

firms will not agree to a given price. 

the firm's revenue will fall as the price falls. 

d. Shortcomings of the kinked-demand model include 

the allowance for price leadership. 

a lack of explanation for how the final price is set. 

the allowance for collusion. 

a lack of explanation for how the initial price is set.

Answer 1

1) The kinked demand curve assumes that rivals match price cuts but don't match price increase

option(C)

2) the slope of the demand curve changes abruptly

option(C)

3) firms expect any change in price will lower revenue and profit.

option(A)

4) a lack of explanation for how the initial price is set

option(D)