PRC-3 · Chapter 12 · Question 43 of 69
In an oligopoly, a firm assumes that if it lowers its price, rivals will match it, but if it raises its price, rivals will ignore it and steal its customers. This assumption results in a:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Kinked demand curve
Explanation
The kinked demand curve model explains price rigidity in oligopolies, where demand is highly elastic for price increases but inelastic for price cuts.
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