The reason for the kinked demand curve is that ?
Correct answer: C. The oligopolist believers that competitors will match price cuts but not price rises
- A. The oligopolist believes that competitors will match output increase but not output reduction
- B. The oligopolist believes that competitors will match price increase but not output reduction
- C. The oligopolist believers that competitors will match price cuts but not price rises
- D. The oligopolist believes that competitors will match price increase but not output increase
Explanation
In the kinked-demand model, rivals are expected to match a price cut but not a price rise. A cut therefore brings little extra market share, while a rise causes substantial loss of customers, creating the kink.
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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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