Question

(b) With regards the Kinked demand curve theory given by Paul Sweezy, answer the following:

(i) The demand curve facing an oligopolist has a kink at the level of the prevailing price. Discuss.

 (ii) Why does the slope of the demand curve vary on the both sides of the kink? Give reason.

26 Oct 2021
Answer :
Word Count : 513

Kinked Demand Curve Theory in Oligopoly: Understanding Market Dynamics

*Principles of Microeconomics-II*

(i) The Kinked Demand Curve in Oligopoly

Paul Sweezy's kinked demand curve theory provides a unique perspective on understanding the behavior of firms in an oligopolistic market structure. Oligopoly is characterized by a small number of large firms dominating an industry, leading to interdependence in decision-making. In such a market, firms face a demand curve that exhibits a distinct kink at the prevailing price level.

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