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A kink in an otherwise linear demand curve. Note how marginal costs can fluctuate between MC1 and MC3 without the equilibrium quantity or price changing. The Kinked-Demand curve theory is an economic theory regarding oligopoly and monopolistic competition. Kinked demand was an initial attempt to explain sticky prices.
Paul Marlor Sweezy (April 10, 1910 – February 27, 2004) was a Marxist economist, political activist, publisher, and founding editor of the long-running magazine Monthly Review. He is best remembered for his contributions to economic theory as one of the leading Marxian economists of the second half of the 20th century.
The graph below depicts the kinked demand curve hypothesis which was proposed by Paul Sweezy who was an American economist. [29] It is important to note that this graph is a simplistic example of a kinked demand curve. Kinked Demand Curve. Oligopolistic firms are believed to operate within the confines of the kinked demand function.
Sweezy continues to outline the Marxian concepts of both the labor theory of Value and surplus value, as well as covers the role of supply and demand. Reproduction schemes are introduced and used to outline the extraction of surplus value and to criticize the traditional, albeit limited, Marxian solution to the Transformation problem .
In order to distinguish themselves well, these firms can compete in price, but more often, oligopolistic firms engage in non-price competition because of their kinked demand curve. In the kinked demand curve model, the firm will maximize its profits at Q,P where the marginal revenue (MR) is equal to the marginal cost (MC) of the firm.
Shannon–Weaver model of communication [86] The Shannon–Weaver model is another early and influential model of communication. [10] [32] [87] It is a linear transmission model that was published in 1948 and describes communication as the interaction of five basic components: a source, a transmitter, a channel, a receiver, and a destination.
The demand curve the oligopolist faces is that of two separate curves spliced together, creating a discontinuity in the MR curve. This means that a profit maximising firm will still produce at quantity Q and price P if marginal costs are equal to MC1, MC2 or MC3, thus explaining price stability.
Second, spending on the sales effort was an important outlet for surplus as large firms engaged in non-price forms of competition and sought to enlarge demand. However, such marketing expenditures (advertising, sales promotion, excessive model changes, etc.) do not provide any additional use-value and therefore may be treated as waste.