If an oligopolistic firm believes that its competitors would match a price decrease, but not match a price increase, its demand curve is
A) linear, but more elastic at higher prices.
B) linear, but less elastic at lower prices.
C) kinked, being more elastic above the current price.
D) kinked, being less elastic above the current price.

Question

Quizplus · Accepted Answer

The kinked demand curve is a graphical representation of the demand curve facing an oligopolistic firm. It is kinked at the current price, with the upper segment being more elastic than the lower segment. This is because the firm believes that its competitors would match a price decrease, but not match a price increase. As a result, the firm is reluctant to raise prices, as it would lose market share to its competitors. However, the firm is also reluctant to lower prices, as it would not be able to recoup its costs.

If an Oligopolistic Firm Believes That Its Competitors Would Match