Use the following to answer questions below :
-Refer to the kinked demand graph. If an oligopolistic firm with constant unit cost equal to $60 faces this demand curve, then the firm will
A) charge $60.00 per unit.
B) charge $62.50 per unit.
C) charge $65.00 per unit.
D) None of the above is correct.

Question

Use the following to answer questions below : 
-Refer to the kinked demand graph. If an oligopolistic firm with constant unit cost equal to $60 faces this demand curve, then the firm will
A) charge $60.00 per unit. 
B) charge $62.50 per unit. 
C) charge $65.00 per unit. 
D) None of the above is correct.

Quizplus · Accepted Answer

In a kinked demand curve model, firms in an oligopoly face a demand curve that is more elastic for price increases and less elastic for price decreases. The firm will set a price where marginal cost equals marginal revenue, which typically occurs at the kink. Given the constant unit cost of $60, the firm will likely charge a price above this cost, such as $65.00, to maximize profit while considering the kinked demand curve.

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