What is the demand curve for oligopoly?
Answer: In an oligopolistic market, the kinked demand curve hypothesis states that the firm faces a demand curve with a kink at the prevailing price level. The curve is more elastic above the kink and less elastic below it. This means that the response to a price increase is less than the response to a price decrease.
How do you describe an oligopoly graph?
Oligopoly Diagram
- Firms are profit maximisers.
- If one firm increases the price, other firms won’t follow suit. Therefore, for a price increase, demand is price elastic.
- If one firm cuts price, other firms will follow suit because they don’t want to lose market share.
- This is how we get the ‘kinked demand curve.
What does a demand curve look like for an oligopolistic firm quizlet?
What does a demand curve look like for an oligopolistic firm? It could be downward sloping or kinked. An oligopolistic firm’s marginal revenue curve is made up of two segments if ______. Suppose the rivals of an oligopolistic firm ignore both a price increase and decrease.
Why is demand curve indeterminate in oligopoly?
As there is high degree of interdependence between the firms, the firms demand curve is indeterminate under oligopoly. Price and output policy of one firm has significant impact on the rival firm’s price and output policy in the market. It is hard to estimate change in firm’s sales caused by a change in price.
How do oligopolies influence market inefficiencies?
Firms in an oligopoly may collude to set a price or output level for a market in order to maximize industry profits. At an extreme, the colluding firms can act as a monopoly. Oligopolists pursuing their individual self-interest would produce a greater quantity than a monopolist, and charge a lower price.
What is oligopoly in economics with example?
Oligopoly arises when a small number of large firms have all or most of the sales in an industry. Examples of oligopoly abound and include the auto industry, cable television, and commercial air travel. Oligopolistic firms are like cats in a bag.
What is oligopoly explain characteristics of oligopoly market?
Answer: An oligopoly is an industry which is dominated by a few firms. In this market, there are a few firms which sell homogeneous or differentiated products. Also, as there are few sellers in the market, every seller influences the behavior of the other firms and other firms influence it.
What is oligopoly market?
Oligopoly markets are markets dominated by a small number of suppliers. They can be found in all countries and across a broad range of sectors. Some oligopoly markets are competitive, while others are significantly less so, or can at least appear that way.
How does kinked demand curve explain price rigidity under oligopoly?
The kinked-demand curve model (also called Sweezy model) posits that price rigidity exists in an oligopoly because an oligopolistic firm faces a kinked demand curve, a demand curve in which the segment above the market price is relatively more elastic than the segment below it.
Which is the best diagram to explain oligopoly?
There are different diagrams that you can use to explain 0ligopoly markets. It is important to bear in mind, there are different possible ways that firms in Oligopoly can behave. 1. Kinked Demand Curve Diagram In the kinked demand curve model, the firm maximises profits at Q1, P1 where MR=MC.
How is oligopoly related to the kinked demand curve?
Stable prices (e.g. through kinked demand curve) – firms concentrate on non-price competition. Price wars (competitive oligopoly) Collusion- leading to higher prices. The kinked demand curve model This model suggests that prices will be fairly stable and there is little incentive for firms to change prices.
How is the price arrived at in oligopoly?
It doesn’t explain how the price was arrived at in the first place. Firms may engage in price competition. If firms in oligopoly collude and form a cartel, then they will try and fix the price at the level which maximises profits for the industry. They will then set quotas to keep output at the profit maximising level.
How do firms compete in an oligopoly market?
In an oligopoly, firms often compete on non-price competition. This makes advertising and the quality of the product are often important. Oligopoly is the most common market structure How firms compete in oligopoly There are different possible ways that firms in oligopoly will compete and behave this will depend upon: