Question

According to kinked demand curve theory, the upper segment of the demand curve is _______.

• A. highly elastic
• B. highly inelastic
• C. unitary elastic
• D. perfectly inelastic

Answer 1

The correct option is B highly inelastic

Oligopoly is a type of market where there are small number of big firms influence the market price and demand of the commodity. Under this type of market, the demand curve is indeterminate which is known as kinked shaped demand curve due to high interdependence of firms on to each other because of which the decision of each firm keeps changing continuously. The upper segment of the demand curve is usually inelastic due to no close substitutes in the market at initial stage.