Assume that five oligopolists begin with a common price of p = $15.One of the firms raises its price to $18.What are the other four firms likely to do,based on the theory of the kinked demand curve?

A) Raise their prices also,but by less than $3
B) Raise their prices by $3
C) Keep their prices the same
D) Lower their prices by less than $3
E) Lower their prices by $3

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Herani Mideksa · Accepted Answer

Final Answer : C, Explanation :  The theory of the kinked demand curve suggests that rivals will often match a price increase, but not a price decrease. Therefore, the other four firms are more likely to keep their prices the same rather than raise or lower them in response to the one firm's price increase.

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