Use the following scenario to answer the following questions:
Kit-N-Sit and Kittysitters are two cat-sitting services in Kent,Ohio.There are no other cat-sitting services,so the market is considered to be a duopoly.
-According to the kinked demand curve theory,if Kit-N-Sit increases prices,Kittysitters will
A) do nothing and leave prices unchanged.
B) sue Kit-N-Sit for monetary damages in court.
C) respond aggressively by increasing prices.
D) split the company into two different companies: Kit and Sit.
E) respond aggressively by cutting prices.

Question

Quizplus · Accepted Answer

EAccording to the kinked demand curve theory, if one firm in an oligopoly (or duopoly, in this case) increases its prices, the other firms are likely to leave their prices unchanged to gain a larger market share. Conversely, if a firm lowers its prices, other firms are likely to respond aggressively by cutting their prices as well, to maintain their market share. Therefore, if Kit-N-Sit increases prices, Kittysitters is likely to do nothing and leave prices unchanged, and if Kit-N-Sit were to cut prices, Kittysitters might respond by cutting prices.

Use the Following Scenario to Answer the Following Questions