A prediction from the kinked-demand curve model of noncollusive oligopoly is that,for an individual firm,small changes in:
A) demand will not lead to changes in price or output.
B) marginal revenue will lead to changes in price and output.
C) marginal cost will lead to changes in price and output.
D) marginal cost will not lead to changes in price or output.

Question

Quizplus · Accepted Answer

In the kinked-demand curve model, firms in an oligopoly are reluctant to change prices because they expect that competitors will not follow price increases but will follow price decreases. Therefore, small changes in marginal cost do not lead to changes in price or output.

A Prediction from the Kinked-Demand Curve Model of Noncollusive Oligopoly