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The kinked demand curve model of oligopoly assumes that
- a)response to a price increase is less than the response to a price decrease.
- b)response to a price increase is more than the response to a price decrease.
- c)elasticity of demand is constant regardless of whether price increases or decreases.
- d)elasticity of demand is perfectly elastic if price increases and perfectly inelastic if price decreases.
Correct answer is option 'A'. Can you explain this answer?
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The kinked demand curve model of oligopoly assumes thata)response to a...
The oligopolist faces a kinked‐demand curve because of competition from other oligopolists in the market. If the oligopolist increases its price above the equilibrium price P, it is assumed that the other oligopolists in the market will not follow with price increases of their own.
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The kinked demand curve model of oligopoly assumes thata)response to a...
Explanation:
The kinked demand curve model of oligopoly is a theory that explains the pricing behavior of firms in an oligopoly market. It assumes that firms in an oligopoly market face a demand curve that is kinked, meaning that it has a discontinuity or a sharp bend at the current price level.
Response to a price increase is less than the response to a price decrease:
According to the kinked demand curve model, the demand curve facing a firm is more elastic above the current price level and less elastic below the current price level. This means that if a firm increases its price, it assumes that other firms will not follow suit and will keep their prices constant. As a result, the firm that increased its price will experience a significant decrease in demand because consumers will switch to the lower-priced alternatives offered by other firms. On the other hand, if a firm decreases its price, it assumes that other firms will follow suit and will also decrease their prices. Therefore, the firm that decreased its price will not gain a significant increase in demand because consumers will perceive the price decrease as temporary and will not switch from their current preferences.
Elasticity of demand is constant regardless of whether price increases or decreases:
The kinked demand curve model does not assume that the elasticity of demand is constant regardless of whether price increases or decreases. In fact, it assumes that the elasticity of demand is different above and below the current price level. Above the current price level, the demand curve is more elastic, meaning that a small change in price will result in a relatively large change in quantity demanded. Below the current price level, the demand curve is less elastic, meaning that a large change in price will result in a relatively small change in quantity demanded.
Elasticity of demand is perfectly elastic if price increases and perfectly inelastic if price decreases:
The kinked demand curve model does not assume that the elasticity of demand is perfectly elastic if price increases and perfectly inelastic if price decreases. Instead, it assumes that the elasticity of demand is relatively high above the current price level and relatively low below the current price level.
Therefore, the correct answer is option 'A' - response to a price increase is less than the response to a price decrease.
The kinked demand curve model of oligopoly is a theory that explains the pricing behavior of firms in an oligopoly market. It assumes that firms in an oligopoly market face a demand curve that is kinked, meaning that it has a discontinuity or a sharp bend at the current price level.
Response to a price increase is less than the response to a price decrease:
According to the kinked demand curve model, the demand curve facing a firm is more elastic above the current price level and less elastic below the current price level. This means that if a firm increases its price, it assumes that other firms will not follow suit and will keep their prices constant. As a result, the firm that increased its price will experience a significant decrease in demand because consumers will switch to the lower-priced alternatives offered by other firms. On the other hand, if a firm decreases its price, it assumes that other firms will follow suit and will also decrease their prices. Therefore, the firm that decreased its price will not gain a significant increase in demand because consumers will perceive the price decrease as temporary and will not switch from their current preferences.
Elasticity of demand is constant regardless of whether price increases or decreases:
The kinked demand curve model does not assume that the elasticity of demand is constant regardless of whether price increases or decreases. In fact, it assumes that the elasticity of demand is different above and below the current price level. Above the current price level, the demand curve is more elastic, meaning that a small change in price will result in a relatively large change in quantity demanded. Below the current price level, the demand curve is less elastic, meaning that a large change in price will result in a relatively small change in quantity demanded.
Elasticity of demand is perfectly elastic if price increases and perfectly inelastic if price decreases:
The kinked demand curve model does not assume that the elasticity of demand is perfectly elastic if price increases and perfectly inelastic if price decreases. Instead, it assumes that the elasticity of demand is relatively high above the current price level and relatively low below the current price level.
Therefore, the correct answer is option 'A' - response to a price increase is less than the response to a price decrease.
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The kinked demand curve model of oligopoly assumes thata)response to a...
I think the answer is 'B'
I ICAI FOUNDATION MODULE THE ANSWER IS GIVEN -
"B"
I ICAI FOUNDATION MODULE THE ANSWER IS GIVEN -
"B"
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The kinked demand curve model of oligopoly assumes thata)response to a price increase is less than the response to a price decrease.b)response to a price increase is more than the response to a price decrease.c)elasticity of demand is constant regardless of whether price increases or decreases.d)elasticity of demand is perfectly elastic if price increases and perfectly inelastic if price decreases.Correct answer is option 'A'. Can you explain this answer?
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