The kinked demand curve model of oligopoly assumes the elasticity of demand ?
Correct answer: D. in response to a price increases is more elastic than the elasticity of demand in response to a price decrease
- A. in response to a price increase is less elastic than the elasticity of demand in response to a price decrease
- B. is perfectly elastic if price increases and perfectly inelastic if price decreases
- C. is constant regardless of whether price increase of decrease.
- D. in response to a price increases is more elastic than the elasticity of demand in response to a price decrease
Explanation
In the kinked-demand model, rivals usually follow a price cut but do not follow a price rise. Therefore demand is more elastic above the kink, when the firm raises price, and less elastic below it.
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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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