Asked by Katelyn Chapman on Jun 01, 2024
Verified
Under the kinked demand model, suppose the firm's demand curve shifts rightward but the price at which the kink occurs remains the same. In this case, the firm:
A) does not change its output.
B) increases output.
C) decreases output.
D) We do not have enough information to answer this question.
Kinked Demand Model
An economic model that suggests prices remain stable because firms in oligopoly markets may not adjust their prices in response to small shifts in demand or cost.
Demand Curve Shifts
Changes in the demand curve caused by factors other than the price of the good, leading to a new quantity demanded at every price.
- Examine the presuppositions and consequences associated with the kinked demand curve theory.
Verified Answer
ZK
Zybrea KnightJun 02, 2024
Final Answer :
B
Explanation :
In the kinked demand model, if the firm's demand curve shifts rightward but the kink (the price) remains the same, it means that at the same price, the firm can now sell more quantity. Therefore, the firm increases its output to meet the higher demand at that price.
Learning Objectives
- Examine the presuppositions and consequences associated with the kinked demand curve theory.
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