Which of the following are the features of the kinked demand curve? (i) Stickiness of price (ii) The…
Price stickiness and marginal cost exceeding marginal revenue to the right of the kink are the correct features. The upper segment is relatively elastic because a price…
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Which of the following are the features of the kinked demand curve?
(i) Stickiness of price
(ii) The upper part of the kinked demand curve is highly inelastic
(iii) To the point right of the kink, marginal cost is greater than marginal revenue
(iv) At equilibrium MR = MC
Answer and explanation
Correct answer A
Price stickiness and marginal cost exceeding marginal revenue to the right of the kink are the correct features. The upper segment is relatively elastic because a price increase is not matched by rivals. The gap in marginal revenue allows marginal cost to vary without changing the profit-maximising price or output, so equality of MR and MC is not required at the kink.
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West Bengal SET (WB SET)