The kinked demand curve is drawn under the assumption that:
A) the few firms operating in an oligopoly collude on price changes.
B) firms in the industry regularly change prices.
C) competitors' prices are rigid and not subject to change.
D) a firm is uncertain about the reaction of the competition when it changes its price.

Question

Quizplus · Accepted Answer

The kinked demand curve model assumes that a firm is uncertain about competitors' reactions to price changes, leading to a demand curve with a "kink" where firms expect rivals to match price decreases but not price increases.

The Kinked Demand Curve Is Drawn Under the Assumption That