Question

According to the Kinked Demand Curve Model, If one firm operating in an oligopoly raises its price and other firms do not do so, A. the sales of the firm with the higher price will decline slightly. B. the egos of all the top executives will eventually lead to cooperation at that higher price. C. the sales of the firm that increased its price will decline sharply. D. the firm with the increased price will have its higher profits sustained through cooperation.

Answer 1

Answer:

C. the sales of the firm that increased its price will decline sharply.

Explanation:

A kinked demand curve is basically a demand curve that changes direction at an specific point (generally the equilibrium price). When you are dealing with oligopolies, generally competing firms will match price cuts but they will not follow if instead the price increases.

If only one of the oligopolistic competitors increases their price while the others remain stable, sales volume will decrease. Kinked models are based on the assumption that oligopolies will compete focusing on factors other than price.