Under oligopoly,a kinked-demand curve would explain why firms:
A) avoid price wars.
B) undertake new investment.
C) have different levels of efficiency.
D) are approximately the same size.

Question

Quizplus · Accepted Answer

Under oligopoly, firms tend to avoid price wars as they can be damaging to all firms involved. The kinked-demand curve model suggests that if one firm lowers its price, others are unlikely to follow suit, leading to a loss of market share and decreased profits. On the other hand, if one firm raises its price, others are likely to follow suit, leading to no increase in market share and reduced profits. Therefore, firms tend to maintain prices at the existing level in order to avoid these outcomes.

Under Oligopoly,a Kinked-Demand Curve Would Explain Why Firms