Question

With the help of a diagram, explain the effect of price rigidity above equilibrium price

Answer 1

Answer:

This study develops a two-period model in which the manufacturer determines a price floor and sets production output before demand becomes certain. The model defines the distance between price floor and high-demand-state price in concern to the degree of price flexibility. While conflicting empirical results underscore the importance of theoretical underpinnings, this study shows that economies of scale determine the relation between market competition and price rigidity.

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