Question

An increase in marginal cost that remains within the gap of the marginal revenue curve of a kinked demand oligopolist will?

1) keep price and output the same.
2) raise price and decrease output.
3) lower price and increase output.
4) raise price and raise output.
5) lower price and lower output.

Answer 1

An increase in marginal cost within the gap of the marginal revenue curve for a kinked demand oligopolist will 1) keep price and output the same.

Step-by-step explanation:

An increase in marginal cost that remains within the gap of the marginal revenue curve of a kinked demand oligopolist will keep price and output the same. This is because the kinked demand curve model assumes that rival firms will match price cuts but not price increases. Therefore, an increase in marginal cost that does not exceed the marginal revenue will not result in a price change or an output change, as the firm's optimal decision is to maintain its current level of production to maximize profits.