PRC-3 · Chapter 12 · Question 65 of 69
A monopolistic firm notes that if it lowers its price, rival firms will instantly copy the price cut. If it raises its price, rivals will ignore it. This specific strategic assumption creates a:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Kinked demand curve
Explanation
The kinked demand curve model in oligopoly illustrates price stickiness; demand is highly elastic above the current price and highly inelastic below it, creating a 'kink'.
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