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KINKED-DEMAND CURVE: A demand curve with two distinct segments with different elasticities that join to form a kink. The primary use of the kinked-demand curve is to explain price rigidity in oligopoly. The two segments are: (1) a relatively more elastic segment for price increases and (2) a relatively less elastic segment for price decreases. The relative elasticities of these two segments is directly based on the interdependent decision-making of oligopolistic firms.
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Lesson 20: Oligopoly | Unit 4: Analysis
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Page: 18 of 24
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Topic:
Collusion Output
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- By combining their productive capabilities -- that is, their marginal cost curves -- the firms can now reach a profit-maximizing output.
- This is the same output level that would be reach if monopoly controlled the soft-drink market.
- The two firms maximize total industry profit by producing the quantity of output in which the marginal cost of each firm is equal to the marginal revenue for the overall market.
- A Little Cheating: Consider either firm's predicament. Both can increase profit by increasing production.
- However, under the collusion agreement, each firm can do a little better if they increase production -- so long as the other firms maintain the agreement and the higher price.
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ASSUMPTIONS, KEYNESIAN ECONOMICS The macroeconomic study of Keynesian economics relies on three key assumptions--rigid prices, effective demand, and savings-investment determinants. First, rigid or inflexible prices prevent some markets from achieving equilibrium in the short run. Second, effective demand means that consumption expenditures are based on actual income, not full employment or equilibrium income. Lastly, important savings and investment determinants include income, expectations, and other influences beyond the interest rate. These three assumptions imply that the economy can achieve a short-run equilibrium at less than full-employment production.
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PINK FADFLY
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Today, you are likely to spend a great deal of time searching for rummage sales hoping to buy either an instructional DVD on learning to the play the oboe or a small, foam rubber football. Be on the lookout for rusty deck screws.
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Helping spur the U.S. industrial revolution, Thomas Edison patented nearly 1300 inventions, 300 of which came out of his Menlo Park "invention factory" during a four-year period.
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"I believe that every right implies a responsibility, every opportunity, an obligation, every possession, a duty. " -- John D. Rockefeller, industrialist
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