ЁЯУв Too many exams? DonтАЩt know which one suits you best? Book Your Free Expert ЁЯСЙ call Now!


    тЪб Month End Offer - Flat 52% Off On All Courses! Enroll Now тЪб
    00:00:00 AM Left

    Question

    According to the kinked demand curve model, if a firm

    raises its price, competitors are likely to:
    A Ignore it Correct Answer Incorrect Answer
    B Increase their prices Correct Answer Incorrect Answer
    C Not follow the price increase Correct Answer Incorrect Answer
    D Decrease output Correct Answer Incorrect Answer

    Solution

    Solution: The kinked demand curve model suggests that an oligopoly firm faces: ┬╖ Elastic demand for price increases (rivals donтАЩt 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.

    Practice Next
    More Research Questions
    ask-question