If a profit-maximizing oligopolist has a kinked demand curve, a downward shift in its marginal cost curve:
A) may not affect output or price.
B) increases output or price but not both.
C) reduces both output and price.
D) reduces output but not price.

Question

Quizplus · Accepted Answer

In a kinked demand curve model, the oligopolist faces a demand curve with a kink at the current price. If marginal costs change within a certain range, the firm may not change its price or output because the marginal revenue curve is discontinuous at the kink, making the firm less responsive to changes in marginal cost.

If a Profit-Maximizing Oligopolist Has a Kinked Demand Curve, a Downward