Question

How does the price in the kink demand curve arise? explain graphically. Also

      give an example of kinked dd curve in practice.

Answer 1

The situation of kinked demand curve occurs when demand curve is not in a straight line but its elasticity is different for higher and lower prices

Occurence - kinked demand curve occurs in oligopoly when price becomes rigid then rival firms behave in such a way as price rise or price cuts

Price in demand curve arise -

• When firm increases the price , then it becomes more expensive than rival firms and hence consumer switch to rival firms
• Hence , rise is price lead to fall in demand and demand if therfore price elastic

Example of kinked demand curve in practice -

• Market for petrol - It is homogeneous in nature and consumer are price sensitive. Like when one petrol station increase their price people will automatically shift to another petrol station