Question

A kink in the demand curve facing an oligopolist is caused by:

1) the belief that competitors will follow price increases but not match price decreases.
2) excessive advertising.
3) rapidly rising marginal revenues.
4) the assumption that competitors will follow price reductions but not price increases.

Answer 1

The kink in the demand curve facing an oligopolist is caused by the assumption that competitors will follow price reductions but not price increases. This behavior creates a kink in the demand curve.

Step-by-step explanation:

The kink in the demand curve facing an oligopolist is caused by the assumption that competitors will follow price reductions but not price increases. When an oligopoly firm reduces its price, other firms in the market quickly match the price cut to avoid losing market share. However, when the firm tries to increase its price, other firms do not follow suit, resulting in a sharp decline in sales. This behavior of competitors creates a kink in the demand curve.