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Questions and Answers
In the kinked demand curve model of oligopoly, it is assumed that:
In the kinked demand curve model of oligopoly, it is assumed that:
- Response to a price increase is more than the response to a price decrease
- Response to a price increase is less than the response to a price decrease (correct)
- Elasticity of demand is constant regardless of whether price increases or decreases
- Elasticity of demand is perfectly elastic if price increases and perfectly inelastic if price decreases
The Cobb-Douglas homogeneous production function Q = $L^{1/2}K^{1/2}$ exhibits:
The Cobb-Douglas homogeneous production function Q = $L^{1/2}K^{1/2}$ exhibits:
- Constant returns to scale (correct)
- Decreasing returns to scale
- Increasing returns to scale
- None of the above
Price discrimination will be profitable only if the elasticity of demand in different markets is:
Price discrimination will be profitable only if the elasticity of demand in different markets is:
- Different (correct)
- Uniform
- Less
- Zero
An example of positive economic analysis would be:
An example of positive economic analysis would be:
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Business cycles emerge in which type of economic system?
Business cycles emerge in which type of economic system?
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Study Notes
Oligopoly Models
- In the kinked demand curve model of oligopoly, it is assumed that the demand curve has a kink at the current price level, with a more elastic segment above the kink and a less elastic segment below.
Production Function
- The Cobb-Douglas homogeneous production function is Q = $L^{1/2}K^{1/2}$, where Q is output, L is labor, and K is capital.
Price Discrimination
- Price discrimination will be profitable only if the elasticity of demand in different markets is different, allowing a firm to charge different prices in each market.
Economic Analysis
- An example of positive economic analysis would be a study that aims to describe and explain an economic phenomenon without making value judgments.
Economic Systems
- Business cycles emerge in capitalist economic systems, characterized by private ownership of the means of production and creation of goods and services for profit.
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