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Nisha Sharma posted an Question
October 06, 2021 • 00:52 am 30 points
  • UGC NET
  • Commerce

Here. the demand curve would be elastic and cilaii is smaller than op x 0q. the logical conclusion from this analysis would therefore be that oligopolists would

Here. the demand curve WOuld be elastic and CIlaii is smaller than OP x 0Q. The logical conclusion from this analysis would therefore be that oligopolists would benefit from keeping prices stable so long as all could enjoy reasonable profits at the established price. The kinked demand curve theory also has other implications. A normal demand curve becomes less elastic as price falls, but the oligopolies' demand curve becomes less elastic suddenly at the kink. Mathematically, this causes the MR curve to _Ssuddenly change to a different position, as can be seen in Figure, so that a discontinuity exists along the vertical line YZ above output 0Q,. MC Y MC P

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  • Rucha rajesh shingvekar best-answer

    This implies that the MC curve can increase or decrease between this discontiuity, without necessitating a change in the profit maximising output OQ1 or price OP1 - the oligopolist will absorb the higher costs. According to normal demand and supply analysis, an increase in costs would cause a fall in output and an increase in price. An example of cost absorption in practice is when the price of crude oil rises and petrol companies wish to increase price, but do not as no company wants to be the first to do so.

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