A firm that has a kinked demand curve assumes that, if it raises its price, of its competitors will raise their prices and that, if it lowers its price, of its competitors will lower their prices

Economics Dec 08, 2020

A firm that has a kinked demand curve assumes that, if it raises its price, of its competitors will raise their prices and that, if it lowers its price, of its competitors will lower their prices.

a) all; all

b) none; all

c) all; none

d) none; none

Expert Solution

The correct answer is b) none; all

A firm that has kinked-demand curve assumes that if it raises the price of its goods and services, then none of its competitors will raise their prices. On the other hand, if it lowers its price, all of its competitors will lower their prices. The kinked-demand curve is generally experienced by oligopolists.

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