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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.
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 ...
When the demand curve is perfectly inelastic (vertical demand curve), all taxes are borne by the consumer. When the demand curve is perfectly elastic (horizontal demand curve), all taxes are borne by the supplier. If the demand curve is more elastic, the supplier bears a larger share of the cost increase or tax. [16]
Sweezy did pioneering work in the fields of expectations and oligopoly in these years, introducing for the first time the concept of the kinked demand curve in the determination of oligopoly pricing. [3] Harvard published Sweezy's dissertation, Monopoly and Competition in the English Coal Trade, 1550–1850, in 1938.
At any given price, the corresponding value on the demand schedule is the sum of all consumers’ quantities demanded at that price. Generally, there is an inverse relationship between the price and the quantity demanded. [1] [2] The graphical representation of a demand schedule is called a demand curve. An example of a market demand schedule
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.
Supply chain as connected supply and demand curves. In microeconomics, supply and demand is an economic model of price determination in a market.It postulates that, holding all else equal, the unit price for a particular good or other traded item in a perfectly competitive market, will vary until it settles at the market-clearing price, where the quantity demanded equals the quantity supplied ...