The main assumption behind the kinked demand curve model is that a firm's rivals:
A) follow its price increases and price decreases.
B) do not follow its price increases or price decreases.
C) follow its price increases but not its price decreases.
D) follow its price decreases but not its price increases.

Question

Quizplus · Accepted Answer

The kinked demand curve model assumes that if a firm lowers its price, competitors will follow to avoid losing market share, but if a firm raises its price, competitors will not follow, hoping to increase their market share. This leads to a situation where firms are more likely to keep prices stable.

The Main Assumption Behind the Kinked Demand Curve Model Is