CA Foundation · Business Economics · Price Determination in Different Markets
Which of the following is a major criticism of the kinked demand curve model of oligopoly?
The main criticism is that the model explains why prices stay rigid once set but not how the prevailing price was determined in the first place. It is therefore an incomplete theory of price determination in oligopoly.
- AIt assumes that there is only one seller in the market
- BIt assumes free entry and exit of firms with identical products
- CIt explains price rigidity but does not explain how the original price was determinedCorrect
- DIt predicts that firms always cut prices to gain market share
Explanation
The model starts from an existing price and shows why it tends to stay unchanged, but it does not explain how that price was arrived at. The other options misdescribe oligopoly: it has few sellers, barriers to entry and the model predicts rigidity rather than frequent price cuts.
Did you get it right without looking?
One question tells you little. A timed set on Price Determination in Different Markets shows your real accuracy, how long you take and where you lose marks.
More Price Determination in Different Markets questions
- A monopolist faces the linear demand curve P = 80 - 4Q. At what output is total revenue maximised?
- A monopolist faces the demand curve P = 100 - 2Q and has a constant marginal cost of Rs 20 per unit. What price will the profit-maximising m…
- Which of the following is an example of non-price competition commonly seen in monopolistic competition?
- A cinema hall in Pune charges ₹150 per ticket for weekday matinee shows and ₹300 for weekend evening shows, although the cost of showing the…
- Which of the following best describes a market in the economic sense?
- A market has 4 firms, each producing a homogeneous product, and entry of new firms is blocked by high barriers. Which market form does this …