2. Answer all parts of the quests below and show your
work for full credit.
- What assumptions about a rival’s response to price changes
underlie the kinked-demand curve for oligopolists?
- Why is there a gap in the oligopolist’s marginal-revenue
curve?
- How does the kinked-demand curve explain price rigidity in
oligopoly?
- What are the shortcomings of the kinked-demand
model?