Economics Perfect Competition Questions
The demand curve faced by an oligopolistic firm is typically kinked or irregular. This is because in an oligopoly, there are a few large firms that dominate the market and their actions significantly impact the market conditions. The kinked demand curve suggests that the firm's rivals are likely to match any price decrease, but may not follow a price increase. As a result, the firm faces a relatively elastic demand curve for price decreases and a relatively inelastic demand curve for price increases. This creates a kink in the demand curve at the current price level, indicating a discontinuity in the firm's marginal revenue.