In oligopoly situations,
A) one firm usually acts as the price leader--and orders the other firms to set the same price.
B) the best price is usually at the kink in the marginal revenue and demand curves.
C) each firm charges a different price.
D) All of the above is correct.
E) None of the above is correct.

Question

Quizplus · Accepted Answer

In oligopoly situations, firms often face a kinked demand curve, which creates a discontinuity in the marginal revenue curve. At the point of the kink, the slope of the marginal revenue curve changes abruptly, making it difficult for a firm to increase its market share by lowering price. Therefore, the best price for firms in an oligopoly is usually at the kink in the marginal revenue and demand curves. Choice A is incorrect because there is no guarantee that one firm will act as a price leader, and even if it does, it may not be able to dictate prices to other firms. Choice C is incorrect because firms in an oligopoly typically try to match each other's prices rather than charging different prices.

In Oligopoly Situations