Assume that an oligopolist faces a kinked demand curve. Suppose that the marginal cost curve passes through the gap in the marginal revenue curve. Price and output will be determined
A) drawing a line from the point where MC = P to both the vertical and horizontal axis, the vertical indicating output, the horizontal indicating price
B) drawing a line from the point where MC = P to both the vertical and horizontal axis, the vertical indicating price, the horizontal indicating output
C) at the kink
D) at ATC = MC which, too, passes through the gap
E) to be zero because the MC curve passes through the gap

Question

Quizplus · Accepted Answer

The kinked demand curve model for oligopolies suggests that price and output will be stable at the kink, where the marginal cost curve intersects the discontinuity in the marginal revenue curve, regardless of fluctuations in marginal cost within the gap.

Assume That an Oligopolist Faces a Kinked Demand Curve