Multiple choice

In Oligopoly market kinked demand curve explains:

  1. Collusion among rival firms

  2. Average variable cost curves

  3. Short run average cost curve

  4. Long run average cost curve
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Explanation

The kinked demand curve model in oligopoly explains price rigidity and the tendency of firms to match price cuts but not price increases. This creates a 'kink' at the prevailing price. The model suggests that this behavior emerges from the interdependence and strategic interactions among rival firms in an oligopolistic market, where firms implicitly follow each other's pricing decisions to avoid price wars.

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