question archive The kinked demand curve model of oligopoly assumes that the elasticity of demand: a) in response to a price increase is less elastic than the elasticity of demand in response to a price decrease
The kinked demand curve model of oligopoly assumes that the elasticity of demand: a) in response to a price increase is less elastic than the elasticity of demand in response to a price decrease
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The kinked demand curve model of oligopoly assumes that the elasticity of demand:
a) in response to a price increase is less elastic than the elasticity of demand in response to a price decrease.
b) in response to a price increase is more elastic than the elasticity of demand in response to a price decrease.
c) is constant regardless of whether price increases or decreases.
d) is perfectly elastic if price increases and perfectly inelastic if price decreases.
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a) in response to a price increase is less elastic than the elasticity of demand in response to a price decrease
Increased prices will reduce the market demand for the firms and eventually their profits will decline hence the firms will refrain from increasing the prices even if one of them does that. On the other hand decrease in the prices attracts more market and the profits in the short run can rise. Since the demand is shifting towards the firm who reduced the demand is said to be elastic.
