Question

4. Briefly explain the functioning of a base point pricing system. Identify the inefficiencies that would result in the short run and in the long run.

5. Economists sometimes argue that prices seem to be more rigid under oligopoly. The Sweezy (or kinked demand) model was proposed as an explanation for this rigidity. Graphically present the Sweezy model. What accounts for the kink in the demand curve? Explain why an increase in marginal cost might not affect product price in this model.

Answer 1