Question

An oligopolist faces a demand curve that is steeper at higher prices than at lower prices. Which of the following is most likely?

1) The firm competes with others in the Bertrand fashion.

2) Other firms match price reductions but do not match price changes.

3) The firm competes with others in the Cournot fashion.

4) Other firms match price increases but do not match price reductions.

Answer 1

Ans: 4) Other firms match price increases but do not match price reductions.

Explanation:

Generally , an oligopolist faces a kinked demand curve that is flatter at higher prices and steeper at lower prices. It means demand is more elastic in the flatter portion and less elastic at the steeper portion. In this case other firms match price decreases but do not match price increase. But as per above statement , an oligopolist faces a demand curve that is steeper at higher prices than at lower prices , other firms or competitors match price increases but do not match price reductions.