What kind of demand curve does an oligopoly have?
kinked‐demand curve
The oligopolist faces a kinked‐demand curve because of competition from other oligopolists in the market. If the oligopolist increases its price above the equilibrium price P, it is assumed that the other oligopolists in the market will not follow with price increases of their own.
Is an oligopoly demand curve downward sloping?
The answer is b: downward sloping. The demand curve in oligopoly markets slopes downward.
Does an oligopoly have a horizontal demand curve?
For example, if each firm in an oligopoly sells an undifferentiated product like oil, the demand curve that each firm faces will be horizontal at the market price.
Do oligopolies have perfectly elastic demand curve?
Monopolistic producers will operate at a higher point on the MC curve than the minimum due to excess capacity. The demand curve in monopolistic competition is perfectly elastic. Advertising is most important in oligopolies and monopolies.
Why is demand curve indeterminate in oligopoly?
As there is high degree of interdependence between the firms, the firms demand curve is indeterminate under oligopoly. Price and output policy of one firm has significant impact on the rival firm’s price and output policy in the market. It is hard to estimate change in firm’s sales caused by a change in price.
When a firm’s demand curve is tangent?
When a firm’s demand curve is tangent to its average total cost curve, economic profits are zero and the firm will exit the industry in the long run since firms are unwilling to operate at zero economic profit.
What is the demand curve for perfect competition?
A perfectly competitive firm’s demand curve is a horizontal line at the market price. This result means that the price it receives is the same for every unit sold. The marginal revenue received by the firm is the change in total revenue from selling one more unit, which is the constant market price.
Do oligopolies have freedom of entry?
One important source of oligopoly power is barriers to entry. Barriers to entry are obstacles that make it difficult to enter a given market. This means that new firms cannot enter the market whenever existing firms are making a positive economic profit, as is the case in perfect competition.
Why is the MR curve discontinuous in an oligopoly?
Due to the kink in the demand curve of the oligopolist, his MR curve is discontinuous at the level of output corresponding to the kink. The MR has two segments segment dA corresponds to the upper part of the demand curve, while the segment from point B corresponds to the lower part of the kinked-demand curve.
How does the demand curve illistrate the law of demand?
A downward sloping demand curve illustrates the law of demand, showing that demand increases as prices decrease, and vice versa. In contrast, a demand curve that slopes upward and to the right indicates that demand for a product increases as the price rises.
What are some examples of a demand curve?
A demand curve shifts when a determinant other than prices changes. for example: Income of the buyers. Consumer trends and tastes. Expectations of future price, supply, needs , etc. The price of related goods . If the price changes, then the demand curve will show how many units will be sold.
What is the demand curve formula?
The formula for a demand curve is based on the quantity demanded and the prices. A linear demand curve would have this format: “q= a-bp,” where “q” is the quantity demanded and “p” is the price at which consumers are willing to buy the product; “a” is the quantity demanded when price is 0, also known as the y-intercept,…
What is a highly inelastic demand curve?
A highly inelastic demand curve is very steep (η close to zero , e.g., -0.1). Many goods that are necessities or have very few substitutes behave this way. A demand curve with an elasticity near -1 is said to be “uniformly elastic.” A highly elastic demand curve is very flat (η between -2 and -5).