CIMA BA1 · Chapter 7 · Question 9 of 11
The kinked demand curve model of oligopoly is used to explain:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Why prices in oligopolistic markets tend to be stable
Explanation
The model assumes rivals will match a price cut but not a price rise. Demand is elastic above the current price and inelastic below it, creating a gap in the MR curve. Changes in MC within the gap leave the profit-maximising price unchanged, explaining price rigidity.
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