The two-period dynamic monopoly model is more useful than the static monopoly model in analyzing monopoly behavior when
A) the product produced requires a bandwagon effect.
B) the product produced generates a positive network externality.
C) the monopoly initially uses a lower introductory price.
D) All of the above situations.

Question

Quizplus · Accepted Answer

The two-period dynamic monopoly model is useful in analyzing monopoly behavior in all of the mentioned situations. In situations where the product produced requires a bandwagon effect or generates a positive network externality, the dynamic nature of the model can capture the strategic behavior of the monopoly in setting prices across two periods. Additionally, if the monopoly initially uses a lower introductory price, the dynamic model can capture its subsequent pricing behavior in the second period to maximize profits. Therefore, the dynamic monopoly model is more versatile and applicable in different market situations than the static model.

The Two-Period Dynamic Monopoly Model Is More Useful Than the Static