The kinked demand curve for a firm in oligopoly assumes that:
A) the firm's competitors do not follow either a price increase or decrease but keep their prices rigid.
B) the firm's competitors follow both a price increase and a price decrease.
C) the firm's competitors follow a price increase but do not follow a price decrease.
D) the firm's competitors follow a price decrease but do not follow a price increase.

Question

Quizplus · Accepted Answer

The kinked demand curve model assumes that if a firm raises its prices, competitors will not follow, leading to a loss of market share. However, if the firm lowers its prices, competitors will match the price decrease to maintain their market share.

The Kinked Demand Curve for a Firm in Oligopoly Assumes