Question

According to the kinked demand curve model, if a firm

Q: Answer-According to the kinked demand curve model, if a firm raises its price, competitors are likely to:

Solution The kinked demand curve model suggests that an oligopoly firm faces Elastic demand for price increases rivals dont follow, firm loses many customers. Inelastic demand for price cuts rivals match price cuts, firm gains few customers. Hence, firms avoid raising prices, leading to price rigidity.

raises its price, competitors are likely to:

A Ignore it

B Increase their prices

C Not follow the price increase

D Decrease output

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