kinked demand curve

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A demand curve as it would appear to a firm which expected that if it raised its price, rivals would not follow suit, whereas if it cut its price, rivals would respond by cutting theirs. The demand curve would thus appear more elastic for price rises than price falls. This would lead to a discontinuity in marginal revenue at the existing output, making it likely that small changes in costs would not shift the marginal cost curve enough to make the firm want to change its price. This type of expectations would lead to a tendency for prices to be sticky at their existing levels.

Kinked Demand Curve

Subjects: Economics.

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