Which of the following is an assumption in the two-sided search model about the matching function?
A)The increase in matches from an increase in Q is decreasing in Q.
B)The increase in matches from an increase in A is increasing in A.
C)The increase in matches from an increase in Q is increasing in Q.
D)The number of matches increases if Q increases but A decreases.
E)The number of matches increases if Q or A decrease.

Question

Quizplus · Accepted Answer

The two-sided search model assumes diminishing returns to scale in the matching function, meaning that while increasing the quantity of one side of the market (Q) leads to more matches, the rate of increase in matches decreases as Q increases. This reflects the assumption A) that the increase in matches from an increase in Q is decreasing in Q.

Which of the Following Is an Assumption in the Two-Sided