-Suppose in Exhibit L-3, representing the demand curves that make up a firm's kinked demand curve, that price is $50. If the firm cuts the price, it will then A) follow along demand curve D₁ B) follow along demand curve D₂ C) find that the other firms will ignore the price decrease so that the price-raising firm will face D₁ D) find that the other firms will ignore the price decrease so that the price-raising firm will face D₂ E) find that the other firms will raise their prices

Question

Quizplus · Accepted Answer

The kinked demand curve model suggests that if a firm lowers its price, competitors will match the price decrease to maintain their market share, leading the firm to move along the more elastic demand curve segment (D₂) to avoid losing sales to competitors.

-Suppose in Exhibit L-3, Representing the Demand Curves That Make