Which statement concerning the kinked demand curve model of oligopoly is false?
A) It addresses the question of price stickiness.
B) It assumes when one oligopolist raises the price,all others follow.
C) The portion of the demand curve above the kink is more elastic than the portion below.
D) The firm's marginal costs can sometimes shift without changing the profit-maximizing price and output.

Question

Quizplus · Accepted Answer

The kinked demand curve model of oligopoly assumes that when one oligopolist raises the price, other oligopolists do not follow, leading to a gap in the demand curve or kink. Therefore, statement B, which says that all other oligopolists will follow the price change, is false. The model also addresses the question of price stickiness (A), assumes that the portion of the demand curve above the kink is more elastic than the portion below (C), and acknowledges that the firm's marginal costs can sometimes shift without changing the profit-maximizing price and output (D).

Which Statement Concerning the Kinked Demand Curve Model of Oligopoly