Asked by Julia Little on Jul 03, 2024
Verified
If an oligopolist's demand curve has a "kink" in it, then over some interval,
A) the oligopolist's marginal cost curve will have a break in it.
B) the oligopolist need not fear entry into the industry by new firms.
C) the oligopolist's competitors will not react to its price changes, either up or down.
D) changes in marginal cost will not cause a change in the profit-maximizing price.
Kinked-Demand
A demand curve hypothesis in oligopolistic markets that explains why firms may not change their prices even when costs change, due to competitive reactions.
Oligopolist
A firm or business that is part of a market structure where a few companies dominate the industry, often leading to limited competition.
- Present the factors and consequences associated with the kinked demand curve in the framework of oligopolistic markets.
Verified Answer
PC
Priscilla CervantesJul 06, 2024
Final Answer :
D
Explanation :
The "kinked" demand curve model suggests that within a certain range, changes in marginal cost do not affect the oligopolist's profit-maximizing price because the demand curve is more elastic for price increases and less elastic for price decreases, leading to a stable price.
Learning Objectives
- Present the factors and consequences associated with the kinked demand curve in the framework of oligopolistic markets.
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