Under the kinked demand curve model, a small increase in marginal cost will lead to:
A) an increase in output level and a decrease in price.
B) a decrease in output level and an increase in price.
C) a decrease in output level and no change in price.
D) neither a change in output level nor a change in price.

Question

Quizplus · Accepted Answer

Under the kinked demand curve model, firms are assumed to not change their prices in response to small changes in marginal costs due to the kink in the demand curve. This results in neither a change in output level nor in price.

Under the Kinked Demand Curve Model, a Small Increase in Marginal