The key disadvantage of the kinked-demand model is that it:
A) explains why firms may collude, but it does not explain how they interact.
B) does not explain why prices may be rigid in an oligopoly.
C) requires the assumptions of perfect competition.
D) only holds under price leadership.

Question

Quizplus · Accepted Answer

The kinked-demand model assumes that prices are rigid in an oligopoly, but it does not provide an explanation for why this may be the case. This is considered a disadvantage because it limits the model's applicability to real-world situations.

The Key Disadvantage of the Kinked-Demand Model Is That It