Question

The assumption(s) made to construct a kinked-demand oligopoly model is (are) that: A. all price changes made by any firm will be followed by all of the other firms. B. any price decrease will be ignored, but price increases will be followed. C. all firms in the industry will ignore the price changes made by any one firm. D. all firms will follow a price decrease but will ignore any price increase.

Answer 1

The correct answer is A)

Step-by-step explanation:

When there is a price increase by one of the oligopolists the others will reduce price in order to reduce the make the original company to that increased it's prices to lose market share.

When there is a price decrease others follow suit thus reducing the profit the "leadering company" would have made.

Cheers!