Which statement concerning the kinked demand curve model of oligopoly is false?
A) It addresses the question of price "stickiness."
B) It assumes when one oligopolist raises the price, all others will follow.
C) The portion of the demand curve above the "kink" is more elastic than the portion below.
D) The firm's marginal costs can sometimes shift without changing the profit-maximizing price and output.

Question

Quizplus · Accepted Answer

The kinked demand curve model assumes that when one oligopolist raises the price, other oligopolists will not necessarily follow. This is because they fear losing their market share to their competitors who may keep their prices constant. Hence, the model assumes that prices are sticky and oligopolists tend to maintain their existing price levels.

Which Statement Concerning the Kinked Demand Curve Model of Oligopoly