The kinked demand curve explains
A)The consequences of the interdependent behavior of oligopolists.
B)Why oligopolists are more sensitive to cost changes than are competitive markets.
C)Price-fixing along the elastic part of the demand curve and predatory pricing on the inelastic portion.
D)How an oligopoly can achieve monopoly profits.

Question

Quizplus · Accepted Answer

The kinked demand curve explains the consequences of the interdependent behavior of oligopolists. It shows that if one firm raises its price, its rivals will not follow suit and instead will cut their prices to capture more market share. As a result, the demand curve facing the firm becomes more elastic above the current price level and more inelastic below it, creating a kink in the demand curve. This interdependence leads to price stability in oligopolistic markets.

The Kinked Demand Curve Explains