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A kink in an otherwise linear demand curve. Note how marginal costs can fluctuate between MC1 and MC3 without the equilibrium quantity or price changing. The Kinked-Demand curve theory is an economic theory regarding oligopoly and monopolistic competition. Kinked demand was an initial attempt to explain sticky prices.
In order to distinguish themselves well, these firms can compete in price, but more often, oligopolistic firms engage in non-price competition because of their kinked demand curve. In the kinked demand curve model, the firm will maximize its profits at Q,P where the marginal revenue (MR) is equal to the marginal cost (MC) of the firm. Hence, a ...
However, there are a series of simplified models that attempt to describe market behavior under certain circumstances. Some of the better-known models are the dominant firm model, the Cournot–Nash model, the Bertrand model and the kinked demand model. As different industries have different characteristics, oligopoly models differ in their ...
Generally, when a firm operating in an oligopolistic market adjusts prices, other firms in the industry will be directly impacted. The graph below depicts the kinked demand curve hypothesis which was proposed by Paul Sweezy who was an American economist. [29] It is important to note that this graph is a simplistic example of a kinked demand curve.
Like gravity is to physics, the law of supply and demand is the bedrock principle of all economic theory. It determines where the price of a product or service intersects with the willingness of ...
The point of tariffs, in theory, is to incentivize US manufacturing by making imported goods comparatively more expensive to made-in-the-USA stuff. But here’s the catch: Steve Madden isn’t ...
Stevie Mitchell scored 17 points and No. 15 Marquette capitalized on an early 21-0 run to defeat a pesky Central Michigan team 70-62 on Monday night. Kam Jones and Chase Ross each added 12 points ...
One variation of this traditional theory is the theory of kinked demand. Firms face a kinked demand curve if, when one firm decreases its price, other firms are expected to follow suit to maintain sales. When one firm increases its price, its rivals are unlikely to follow, as they would lose the sales gains they would otherwise receive by ...