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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.
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.
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.
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
Price points A, B, and C, along a demand curve (where P is price and Q represents demand) In economics, a price point is a point along the demand curve at which demand for a given product is supposed to stay relatively high. The term "price point" is often used incorrectly to refer to a price. [1]
In economics, the price elasticity of demand refers to the elasticity of a demand function Q(P), and can be expressed as (dQ/dP)/(Q(P)/P) or the ratio of the value of the marginal function (dQ/dP) to the value of the average function (Q(P)/P). This relationship provides an easy way of determining whether a demand curve is elastic or inelastic ...
Generally, it is difficult to change the impact of the price according to the demand, because the demand may occur due to many other factors besides the price. The company may also have other goals and considerations. For example, companies may choose to earn less than the maximum profit in pursuit of higher market share. Because price ...
An example of this would be the demand for cars and petrol. The supply and demand for cars is represented by the figure, with the initial demand D 1 {\displaystyle D_{1}} . Suppose that the initial price of cars is represented by P 1 {\displaystyle P_{1}} with a quantity demanded of Q 1 {\displaystyle Q_{1}} .