Oligopoly: Price cut and kinked demand curve
Not what you're looking for?
What is the cost to a firm in an oligopoly that fails to take rivals' actions into account? Suppose the firm operates along demand curve D1, shown below, as if no firms will follow its lead in price cuts or price rises. In fact, however, other firms do follow the price cuts, and the true demand curve below price P1 lies below D1. If the firm sets a price lower than P1, what will happen?
see attached
Purchase this Solution
Solution Summary
This post explains how firms should take into account the rivals' actions by showing it on graph i.e. kinked demand curve
Solution Preview
See the attached file. Thanks
In an oligopoly industry, there is a mutually interdependent pricing dynamics which is explained by the Kinked Demand Curve Model. The basic assumption behind this model is that competitors will follow a price decrease but will not make a change in reaction to price increase. If the firm is operating along the curve D1 and has fixed ...
Purchase this Solution
Free BrainMass Quizzes
Lean your Process
This quiz will help you understand the basic concepts of Lean.
Organizational Behavior (OB)
The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
Organizational Leadership Quiz
This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.
Production and cost theory
Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.