You would expect a firm facing a kinked demand curve caused by rivals following its price decreases but not its price increases to be:
A) willing to either raise or lower its price.
B) hesitant to either raise or lower its price.
C) willing to raise its price but hesitant to lower it.
D) willing to lower its price but hesitant to raise it.

Question

Quizplus · Accepted Answer

The kinked demand curve model suggests that a firm will be hesitant to change its price because if it lowers the price, competitors will follow, leading to a lower market price without gaining market share. If it raises the price, competitors will not follow, causing the firm to lose market share. This makes the firm hesitant to either raise or lower its price.

You Would Expect a Firm Facing a Kinked Demand Curve