What is the shape of demand curve under 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.

What is the slope of the demand curve in an oligopoly market?

The answer is b: downward sloping.

The demand curve in oligopoly markets slopes downward.

Why is the demand curve kinked under oligopoly?

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 P, it is assumed that the other oligopolists in the market will not follow with price increases of their own.

Does an oligopoly have a horizontal demand curve?

For example, if each firm in an oligopoly sells an undifferentiated product like oil, the demand curve that each firm faces will be horizontal at the market price.

Does oligopoly faces a downward sloping demand curve?

Oligopoly is a market structure where few firms dominate. Following are the characteristics of oligopoly: A few large firms account for a high percentage of industry output. Each firm faces a downward sloping demand curve.

Y2 23) Oligopoly - Kinked Demand Curve

What is the shape of demand curve under monopolistic competition?

The perceived demand curve for a monopolistically competitive firm is downward-sloping, which shows that it is a price maker and chooses a combination of price and quantity.

What is oligopoly market structure?

An oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence. The concentration ratio measures the market share of the largest firms.

What is oligopoly explain Sweezy's kinked demand curve & price rigidity?

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.

What is the shape of demand curve of a perfectly competitive firm?

Firm's demand curve under perfect competition is a horizontal straight line parallel to X-axis.

Which economist has presented the concept of the kinked demand curve of oligopoly?

The kinked demand curve hypothesis was put forward independently by Paul M. Sweezy, an American economist, and by Hall and Hitch, Oxford economists. ADVERTISEMENTS: It is for explaining price and output under oligopoly with product differentiation, that economists often use the kinked demand curve hypothesis.

What market has a downward sloping demand curve?

Because the monopolist is the market's only supplier, the demand curve the monopolist faces is the market demand curve. You will recall that the market demand curve is downward sloping, reflecting the law of demand.

What are the characteristics of oligopoly?

Why is the demand curve downward sloping in a monopoly?

A firm that faces a downward sloping demand curve has market power: the ability to choose a price above marginal cost. Monopolists face downward sloping demand curves because they are the only supplier of a particular good or service and the market demand curve is therefore the monopolist's demand curve.

What is price rigidity under oligopoly?

Firms under oligopoly are in a position to influence prices. However, they try to avoid price competition for fear of a price war. They follow the policy of price rigidity. Price rigidity refers to a situation in which the price remains constant despite changes in demand and supply conditions.

What is oligopoly 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 are the three main features of an oligopoly?

OLIGOPOLY, CHARACTERISTICS: The three most important characteristics of oligopoly are: (1) an industry dominated by a small number of large firms, (2) firms sell either identical or differentiated products, and (3) the industry has significant barriers to entry.

What is the shape of the demand curve?

Shape of the demand curve

The demand curve typically slopes downward due to the law of demand, which states that there is an inverse proportional relationship between price and demand of a commodity. The constant a embodies the effects of all factors other than price that affect demand.

Why is the demand curve in monopolistic competition more elastic than a monopoly?

Firm's demand curve under monopolistic competition is more elastic than under monopoly because of availability of close substitutes under monopolistic competition.

How is the demand curve under monopolistic competition different from demand curve of a firm under perfect competition?

The demand curve is more elastic as the product has close substitutes. ​​​​​​Comparing the demand curves in perfect competiton and monopolistic competition, it can be seen that the demand curve in perfect competitiion is perfectly elastic while the demand curve in monopolistic competition is fairly elastic.

What is upward sloping demand curve?

a DEMAND CURVE that shows a direct rather than an inverse relationship between the price of a product and quantity demanded per period of time, over part or all of its length.

When the demand curve is vertical?

If a demand curve is perfectly vertical (up and down) then we say it is perfectly inelastic. If the curve is not steep, but instead is shallow, then the good is said to be “elastic” or “highly elastic.” This means that a small change in the price of the good will have a large change in the quantity demanded.

What is horizontal demand curve?

A perfectly elastic demand curve is represented by a straight horizontal line and shows that the market demand for a product is directly tied to the price. In fact, the demand is infinite at a specific price. Thus, a change in price would eliminate all demand for the product.

In which market form demand curve of a firm is perfectly elastic?

In perfect competition, the firm can sell any amount of goods at the prevailing prices, therefore the demand curve of a firm is perfectly elastic under perfect competition.

Why is the demand curve for perfect competition horizontal?

Therefore, perfect competition firms will exhibit a horizontal line in its individual demand curve, because exact substitutes are available in the market. Additionally, the prices of the other products or substitutes will be lower than the firm's product, forcing the buyers to purchase the alternatives.