Question

Wilke is a manufacturer in the oligopolistically competitive market for basketballs. Two other manufacturers, Rawlding and Spaldon, compete with Wilke for basketball consumers. Wilke faces the kinked demand curve for basketballs depicted on the graph. Initially, Wilke charges $24 per basketball, producing and selling 8 million basketballs per year.

a) Increase price to maximize profit
b) Decrease price to capture market share
c) Maintain price at $24 to stay competitive
d) Adjust price based on competitors' prices

Answer 1

To maximize profit, Wilke should maintain the price at $24.

Step-by-step explanation:

In an oligopolistically competitive market, Wilke can use the kinked demand curve to determine its price and quantity of output. The kinked demand curve indicates that if Wilke increases its price, other competitors would not follow suit and Wilke would lose a significant amount of sales. On the other hand, if Wilke decreases its price, competitors would also lower their prices, resulting in only a small increase in sales for Wilke. Therefore, to maximize profit, Wilke should maintain the price at $24 as it is currently charging.