A prediction from the kinked demand curve model of oligopoly is that, for an individual firm, small changes in
A)demand will lead to changes in price or output.
B)marginal revenue will lead to changes in price and output.
C)marginal cost will lead to changes in price and output.
D)marginal cost will not lead to changes in price or output.

Question

Quizplus · Accepted Answer

In the kinked demand curve model, firms in an oligopoly are reluctant to change prices due to the perceived reactions of competitors. If a firm raises prices, others won't follow, leading to a loss in market share. If a firm lowers prices, others will follow, leading to no gain in market share. Thus, marginal cost changes do not affect price or output.

A Prediction from the Kinked Demand Curve Model of Oligopoly