Question

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

(i) What does the kinked demand curve model of oligopoly assumes about the price elasticity of demand? 

(ii) Comment upon the discontinuous shape of the Marginal revenue curve under this model

23 Dec 2024
Answer :
Word Count : 641

The kinked demand curve model, proposed by Paul Sweezy, is a well-known theory in the context of oligopoly market structures, which describe a market dominated by a few firms. The model attempts to explain why prices in oligopolistic markets tend to be sticky, meaning they don’t change frequently despite changes in costs or demand conditions. This behavior is explained through the assumptions about price elasticity of demand and the marginal revenue curve.

(i) Price Elasticity of Demand in the Kinked Demand Curve Model

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