If the demand curve for air travel to London is kinked and one firm reduces its price, then
A) rival firms will raise their prices.
B) rival firms will reduce their prices.
C) quantity demanded will decrease.
D) rival firms will not react.

Question

Quizplus · Accepted Answer

In a market with a kinked demand curve, if one firm reduces its price, rival firms are likely to reduce their prices as well to maintain their market share and competitive position. This behavior is based on the assumption that firms in such markets believe that if they do not match price cuts, they will lose a significant number of customers to the firm that has lowered its prices.

If the Demand Curve for Air Travel to London Is