GK
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Short run average cost curve
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Long run average cost curve
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Average variable cost curve
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Collusion among rival firms
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Detailed explanation-1: -The kinked demand curve illustrates the interdependence of firms in an oligopoly market. The reason why there is a kink in the demand curve is that there are two demand curves: one that is inelastic and one that is elastic. The kink occurs when both demand curves intersect each other.
Detailed explanation-2: -The kinked demand curve is an oligopoly because in an oligopolistic market there is competition from the existing oligopolists. This, therefore, is under the non-collusive oligopoly.
Detailed explanation-3: -The kink in the demand curve stems from the asymmetric behavioural pattern of sellers. If a seller increases the price of his product, the rival sellers will not follow him so that the first seller loses a considerable amount of sales. In other words, every price increase will go unnoticed by rivals.