Question

23. The kinked oligopoly demand curve does NOT describe the demand curve for monopolistic competition because in monopol...


23. The kinked oligopoly demand curve does NOT describe the demand curve for monopolistic competition because in monopolistically competitive markets....

a. Firms are not as interdependant as oligopolistic firms.

b. Firms have no market power.

c. There is not as much product differentiation as in oligopoly.

d. There is no non-price competition

Answer

The Kinked-Demand Curve Theory is a monopolistic and oligopolistic competition economic theory. Kinked demand was an early effort to explain price stability.

According to the kinked demand model, any rise in price will result in a fall in the firm's market share, while any decrease in price will not result in a gain in market share. In an oligopoly, this leads to severe pricing rigidity.

Although several companies create the same sort of goods, each has some price control over its own. Because businesses in monopolistically competitive marketplaces are not as interconnected as oligopolistic enterprises, the kinked oligopoly demand curve does not reflect the demand curve for monopolistic competition.

Answer: 

Correct option is option a) firms are not as interdependent as oligopolistic firms.

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