The principle underlying the kinked-demand curve model of oligopoly is that the demand curve facing one firm is more elastic when other firms in the industry:
A) match the firm's price changes.
B) hold price constant when the firm changes its prices.
C) hold quantities constant when the firm changes its prices.
D) change prices in the opposite direction when the firm changes its prices.

Question

Quizplus · Accepted Answer

In the kinked-demand curve model, the demand curve is more elastic when other firms hold their prices constant while one firm changes its prices, as consumers will switch to the firm with the lower price, increasing the elasticity of demand for that firm's product.

The Principle Underlying the Kinked-Demand Curve Model of Oligopoly Is