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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.
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.
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.
An example of a demand curve shifting. D1 and D2 are alternative positions of the demand curve, S is the supply curve, and P and Q are price and quantity respectively. The shift from D1 to D2 means an increase in demand with consequences for the other variables
The fierce price competitiveness, created by a sticky-upward demand curve, causes firms to use non-price competition in order to accrue greater revenue and market share. "Kinked" demand curves appear similar to traditional demand curves but are distinguished by a hypothesised [clarification needed] convex bend with a discontinuity at the bend ...
(The Center Square) – A Costco executive warned consumers that potential price hikes in stores could be a result of President-elect Donald Trump's proposed tariffs. "When it rains, it rains on ...
When Michael Adams was researching health insurance options in 2023, he had one very specific requirement: coverage for prosthetic limbs. The roughly $50,000 leg with the electronically controlled ...
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.