Refer to the graph above that shows an oligopolist facing a kinked demand curve.

Question

Refer to the graph above that shows an oligopolist facing a kinked demand curve. The firm will not lower price when marginal costs fluctuate between which two points?

            A) a and b.    B) b and c.    C) c and d.    D) a and d.

    16.   The oligopolist shown in the graph above currently charges a price P1. It believes that rival firms will:

            A) gain market share if it lowers its price.       C)   not raise price if it raises price.

            B)   lose market share if it lowers price.           D)   not lower price if it lowers price.

Explanation / Answer

Option B (Point B and C). Between these two points, MR is discontinuous.

16) Option B. If the firm lowers price then the rival firm will lose market share as people will demand more of its products than of rivals.

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