Microeconomics Chapter 11 (3)

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two firms (A and B), no collusion, a given market price and output

The assumptions of a kinked demand curve model in oligopoly are __________________________.

rival firm B reacts to a price change in firm A

The shape of a oligopolist's demand curve depends on how the

highly inelastic

In a kinked demand curve model, if rival firm B will match price change, then firm A's demand curve will be _________.

highly elastic

In a kinked demand curve model, if rival B ignores a price change, firm A's demand curve will be __________.

matched by rival firm A

A kinked demand curve model has behavioral assumptions. Price cuts will be _________________.

ignored by rival firm B

A kinked demand curve model has behavioral assumptions. Price increases will be _______________.

elastic, inelastic

In a kinked demand curve model, the shape of firm A's demand curve will be relatively ______ above the kink and relatively _________ below the kink.

given market price

The will be a kink in the shape of firm A's demand curve at the ___________.

discontinuous

In a kinked demand curve model, the shape of firm A's marginal revenue curve will be ________.

gap, the given output level

In a kinked demand curve model, the shape of firm A's marginal revenue curve will have a _____ at ___________.

price stability or rigidity

The major prediction of kinked demand curve models are that it explains __________________ which is often observed in oligopoly markets.

the profit maximizing price and output

A prediction of the kinked demand curve model is that unit costs rise or fall within limits (gaps) without affecting _______________.

market price

The shortcoming of a kinked demand curve model is that it does not explain how given or going ______________ is initially determined.

cartel

A formal written agreement among firms to control price and production is called a ________.

maximize joint profit

Cartels behave like a monopoly in that they set a common price to ______________ of their members.

anti-trust

In the US, cartels are a violation of ____________ laws.

OPEC

An oil cartel is _______.

collusion

Informal Understandings is a informal type of _______.

tacit understandings and gentlemen's agreements

Informal understandings are also known as _________________.

there is no written agreement

Informal understandings are illegal, but difficult to detect because _____________.

collusion

Price leadership is an informal type of ________.

written, verbal

Price leadership means no _______ or _________ agreement.

largest firm in the industry

The leader in price leadership is usually the ______________.

in the industry follow.

In price leadership, when the leader changes price, other firms _____________.

cheating, different demand and cost curves, recession, number of firms, entry of new firms

The obstacles of collusion are __________________________________.

below the agreed upon price

Cheating occurs when a firm changes a price _____________.

secret price concessions

In cheating, an individual firm may find it profitable to make_______________ to selected to selected buyers to increase sales.

breakup

If a significant number of firms cheat, a collusive oligopoly will _____.

to agree on a single price

Demand and cost curves may differ substantially, making it difficult ___________________.

recession

When the economy is in _________, firms may reduce price to avoid declining sales.

collusion

The larger the number of firms, the more difficult it is for _______.

the price and profit of existing firms

If barriers to entry are insignificant, then the potential entry of new firms reduce ____________________.

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