Question

multiple choice question according to the kinked - demand model of oligopoly, if two of three firms ignore a price decrease by the third firm ______ the third firm will gain sales because the other two firms demand curves become more elastic the third firm will lose sales because the other two firms demand curves become more inelastic the third firm will gain sales because the other two firms demand curves become more inelastic, relative to the third firms demand curve the third firm will lose sales because the other two firms demand curves become more elastic

Explanation:

In the kinked - demand model of oligopoly, when two firms ignore a price decrease by the third firm, consumers of the other two firms are less likely to switch to the third firm. This means the demand curves of the other two firms become more inelastic relative to the third firm's demand curve. As a result, the third firm's price - cutting strategy will not be very effective and it will lose sales.

Answer:

the third firm will lose sales because the other two firms' demand curves become more inelastic