question archive According to the kinked demand curve theory of oligopoly, each firm thinks that the demand curve just below the existing price A
According to the kinked demand curve theory of oligopoly, each firm thinks that the demand curve just below the existing price A
Subject:MarketingPrice:2.88 Bought12
According to the kinked demand curve theory of oligopoly, each firm thinks that the demand curve just below the existing price
A. has the same slope as the curve just above the existing price.
B. is steeper than the curve just above the existing price.
C. is flatter than the curve just above the existing price.
D. None of the above, because in the kinked demand curve theory, the firms are concerned with how the kink in their supply curve affects their consumers' demands.
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Answer: B
The kinked demand curve theory of oligopoly assumes that demand above the existing price is more elastic than the price below. This leads to the slope being steeper below the existing price than above. This is because a price decrease by an oligopoly will cause rivals to cut prices and thus quantity demanded won't change much. A price increase though will not cause rivals to change much and thus quantity demanded will fall more rapidly which leads to a more elastic (flatter) demand curve above the existing price.
