Corresponding to MD1 is the marginal revenue curve labeled MR1

Corresponding to MD1 is the marginal revenue curve labeled MR1

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Corresponding to  MD 1  is the marginal revenue curve labeled  MR 1.  At  low  prices, the firm faces the  relatively  inelastic  market demand curve labeled  MD 2.  Corresponding to  MD 2  is the marginal revenue  curve labeled  MR 2.   The two market demand curves intersect at point  b.  Therefore, the market demand curve that the  oligopolist actually faces is the kinked-demand curve, labeled  abc.  Similarly, the marginal revenue  that the oligopolist actually receives is represented by the marginal revenue curve labeled  adef.  The  oligopolist maximizes profits by equating marginal revenue with marginal cost, which results in an  equilibrium output of  Q  units and an equilibrium price of  P.   The oligopolist faces a kinked-demand curve because of  competition  from other oligopolists in the  market. If the oligopolist  increases  its price above the equilibrium price 
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/19/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.

Ask a homework question - tutors are online