As a result of the assumptions of a kinked demand curve model
A) the portion of the demand curve above the kink is less elastic than below the kink.
B) the portion of the demand curve above the kink is more elastic than below the kink.
C) the MR curve is a continuous line.
D) oligopoly prices are unstable.

Question

Quizplus · Accepted Answer

The kinked demand curve model for oligopolies suggests that the demand curve is more elastic for price increases above the kink (because consumers are more responsive to price increases, leading firms to avoid raising prices) and less elastic for price decreases below the kink (because firms match price decreases to maintain market share, leading to a less responsive demand). This results in a discontinuous marginal revenue (MR) curve, not a continuous one, and is used to explain price stability in oligopolies, not instability.

As a Result of the Assumptions of a Kinked Demand