Kinked Demand Curve

Kinked Demand Curve - reduces its price the producer...

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Kinked Demand Curve: The demand or average revenue curve used in this analysis is Kinked . It has a Kink or a knot . The demand curve is not a smooth straight line but has two segments with a varying degree of flexibility or slope. Before we present the Kinked Demand Curve let us begin with its underlying assumptions. Sweezy has made the following two assumptions: i) If the firm
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Unformatted text preview: reduces its price the producer expects other competitors to introduce a similar price cut ; the market demand will increase but the share of the firm will remain unaltered . ii) If the firm raises the price then other competing firms will not follow the price rise . There will be a very small rise in demand but a significant reduction in the sales of the firm....
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