Question

The kinked demand curve model of oligopoly assumes that ___________.

• A. response to a price increase is less than the response to a price decrease
• B. response to a price increase is more than the response to a price decrease
• C. elasticity of demand is constant regardless of whether price increases or decreases
• D. elasticity of demand is perfectly elastic if price increases and perfectly inelastic if price decreases

Answer 1

The correct option is B response to a price increase is more than the response to a price decrease

Oligopoly is a market where there are a few number of big firms in the market selling differentiated product often form a cartel to keep an uniform price in the market.

The demand curve of an oligopoly market is kinked in shape which signifies that the response to an increase in price is more than the response to a decrease in price.