If an oligopolist's demand curve has a "kink" in it, then over some interval,
A)the oligopolist's marginal cost curve will have a break in it.
B)the oligopolist need not fear entry into the industry by new firms.
C)the oligopolist's competitors will not react to its price changes, either up or down.
D)changes in marginal cost will not cause a change in the profit-maximizing price.

Question

Quizplus · Accepted Answer

The kinked demand curve model suggests that price increases will not be followed by competitors, while price decreases will. This results in a discontinuity in the marginal revenue curve, meaning that within a certain range, changes in marginal cost do not affect the profit-maximizing price.

If an Oligopolist's Demand Curve Has a "Kink" in It