The kinked demand curve model leads to a discontinuity in the MR curve, which shows that MC must change significantly before price changes occur.

Question

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The kinked demand curve model, used to describe oligopolistic markets, suggests that the demand curve has a kink at the current price level. This kink results in a discontinuity in the marginal revenue (MR) curve. Because of this discontinuity, small changes in marginal cost (MC) do not lead to changes in the optimal price or output level, implying that MC must change significantly before a firm will find it optimal to adjust its price.

The Kinked Demand Curve Model Leads to a Discontinuity in the MR