In the Kinked demand curve theory ?
Correct answer: D. non-price competition is likely
- A. There is a kink in the marginal cost curve
- B. Demand is price inelastic
- C. Demand is price elastic
- D. non-price competition is likely
Explanation
The kinked-demand model explains rigid prices: rivals follow a price cut but may not follow a price increase. Since firms cannot gain much through price changes, non-price competition such as advertising and product differentiation becomes likely.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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