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Which of the following is cited as a problem with the kinked demand curve model?

   

It does not explain the price stickiness that is routinely observed in oligopolistic markets.
   

It assumes that firms determine the profit-maximizing level of output by equating marginal cost and average variable cost.
   

It does not explain how the equilibrium market price is determined.
   

It assumes that firms do not attempt to maximize profits.

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Related questions

Tell whether the following is true or false and explain why.

a. In the long-run, purely competitive firms and monopolistically competitive firms earn zero economic profit (normal profit) and both will produce allocatively efficient outputs.

b. Monopolistically competitive firms and oligopoly firms typically earn zero economic profit in the long-run.

c. The kinked demand model of oligopoly allows for the possibility that cost functions, including marginal cost, can shift without changing the quantity and price of profit-maximizing output.

d. Non-price competition refers to reductions in production costs that are not reflected in price reductions.

e. If a natural monopolist engages in marginal cost pricing, it typically will earn abnormal profits.

32. Which of the following is not a difference between monopolies and perfectly competitive markets?

A. Monopolies face downward sloping demand curves while perfectly competitive firms face horizontal demand curves.

B. Monopolies charge a price higher than marginal cost while perfectly competitive firms charge a price equal to marginal cost.

C. Monopolies can earn profits in the long run while perfectly competitive firms break even.

D. Monopolies choose to produce the quantity at which marginal revenue equals marginal cost while perfectly competitive firms do not.

40. Which of the following statements is not correct?

A. Both monopolies and monopolistically competitive firms can earn economic profits in the long run.

B. Both monopolistically competitive and perfectly competitive firms can earn economic profits in the short run.

C. Only competitive firms produce the welfare-maximizing level of output.

D. Firms in perfect competition, monopolistic competition, and monopoly maximize profits by producing where marginal revenue equals marginal cost.

43. A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that

A. the profits of the firm are negative.

B. firms are likely to leave this market in the long run.

C. the firm is currently maximizing its profit.

D. All of the above are correct.

The marginal revenue curve of a monopoly crosses its marginal cost curve at $30 per unit and an output of 2 million units. The price that consumers are willing and able to pay for this outputis $40 per unit. If it priduces this output, the firms average total cost is $43 per unit, and its average fixed cost is $8 per unit. What is this producers profit-maximizing(loss-minimizing) output level and what are the firms economic profits (or economic-losses)?

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