If an oligopolist faces a kinked demand curve, then the price
A) will increase whenever demand decreases.
B) will decrease when competition is reduced.
C) will increase if more firms enter the market.
D) is likely to remain stable even if there is a small change in the costs of production.

Question

Quizplus · Accepted Answer

The kinked demand curve model suggests that prices in an oligopoly tend to be stable because firms will not change their prices in response to small changes in costs, due to the asymmetric reactions of competitors to price increases versus price decreases.

If an Oligopolist Faces a Kinked Demand Curve, Then the Price