If a firm is producing at the kink in its demand curve and it decides to decrease its price,according to the kinked demand model
A)It will gain market share.
B)It will lose market share to the firms that do not follow the price decrease.
C)Its market share will not be affected.
D)It will lose market share,but its profits will decrease.

Question

Quizplus · Accepted Answer

According to the kinked demand model, the demand curve is flatter above the kink and steeper below the kink. Therefore, if a firm is producing at the kink and it decreases its price, it would have to lower its price for all units sold, not just the additional units. As a result, the increase in quantity demanded from the flatter part of the demand curve would be offset by the decrease in quantity demanded from the steeper part of the demand curve, resulting in no change in the firm's market share.

If a Firm Is Producing at the Kink in Its