Answer to Question #94006 in Economics of Enterprise for MS MJ MUNYAI

Question

Briefly discuss and critique the implication/s of the kinked demand curve faced by an oligopolist/s of the kinked demand curve faced by an oligopolist

Answer 1

In an oligopolistic market, the kinked demand curve hypothesis states that the firm faces a demand curve with a kink at the prevailing price level. The curve is more elastic above the kink and less elastic below it. This means that the response to a price increase is less than the response to a price decrease.