Question

The gaming console market is dominated by the likes of Microsoft, Sony, and Nintendo. If each company is willing to match price decreases but not price increases, this would result in:

a) a kinked demand curve.

b) a homogeneous demand curve.

c) an upward sloping demand curve.  

d) a horizontal demand curve.

The kinked demand curve model in an oligopoly market assumes that if a firm raises prices for its products, its competitors will:

a) raise its own prices.

b) not raise its own prices.

c) increase their advertising expenditures.

d) decrease their output.

Fat's Meats is part of a cartel that controls the kielbasa industry. Which of the following would cause instability in this cartel?

a) The demand for kielbasa decreases.

b) The cost of producing kielbasa increases.

c) Fat's Meats engages in nonprice competition.

d) Barriers to entry into the industry increases.

Fat's Meats is part of a cartel that controls the kielbasa industry. Which of the following would cause instability in this cartel?

a) The demand for kielbasa decreases.

b) The cost of producing kielbasa increases.

c) More firms could enter the industry.

d) Nonprice competition is nonexistent.

Which of the following would enhance a cartel's stability?

a) Having fewer members but with conflicting goals.

b) The enactment of Antitrust laws.

c) A lack of nonprice discounts.

d) Ease of entry into the industry.

Answer 1

Q1) Option A This results in a kinked demand because price cuts are always matched but price
increases are not matched. Hence demand is a combination or elastic and inelastic portions
Q2) Option B. As mentioned, competitors would not raise their prices because this will result in
lowering revenues as demand is elastic above the kink
Q3) Option C, Causes of instability is Meats engages in nonprice competition. This will increase
conflicts between members.
Q4) Option C. A lack of nonprice discounts will reduce non price competition thereby, increasing
stability