GK
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The kinked demand curve theory explains that even when the demand conditions ____ the price ____ .
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Change, changes
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Remain stable, rise
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Remain stable, change
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Change, remains stable
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Explanation:
Detailed explanation-1: -Answer: In an oligopolistic market, the kinked demand curve hypothesis states that the firm faces a demand curve with a kink at the prevailing price level. The curve is more elastic above the kink and less elastic below it. This means that the response to a price increase is less than the response to a price decrease.
Detailed explanation-2: -First, the kinked-demand theory predicts that prices should be more likely to change if they have recently changed: hazard functions should be decreasing at first. Second, it predicts that prices should be more flexible in markets where customers can more easily compare prices.
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