Oligopoly: Underlying assumptions of the kinked-demand curve
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What assumptions about a rival's response to price changes underlie the kinked-demand curve for oligopolists? Why is there a gap in the oligopolist's marginal-revenue curve? How does the kinked-demand curve explain price rigidity in oligopoly? What are the shortcomings of the kinked-demand model?
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Solution Summary
Underlying assumptions of the kinked-demand curve for oligpolists and the shortcomings of this model.
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The basic assumption in the kinked demand curve theory is that if a single firm lowers its price, the other firms in the industry will move to match it, but if ...
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