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Economics, Accounting & Business: Post your doubts here!
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Can anyone explain Kinked demand curve of oligopolistic market
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Oligopolistic is a type of imperfect market where there exist small no. of firms which competite with each other. The demand curve for the Oligopolistic market is kinked and is represented as below:
Now the special feature of this demand curve is that it is kinked/discontinued. The reason being so is the price rigidity in case of Oligopolistic market structure. The demand curve from the intial point till the point it gets kinked is price Elastic. This is because the firms would be reluctant to increase the price. If a firm increases a price, it'd lose its customers as the other rival firms would not change the price level. However, below the kinked point is the demand curve which is price in-elastic. The reason being the fact that if a firm reduces price, it'd gain more customers (According to law of demand) However, as a result of reduction in price, the competitor would further reduce the price and this would thus lead to a price war in which consumers would benefit. Therefore the only logical way of increasing the profit when it comes to Oligopolistic market is to reduce the overheads. The principle of Dynamic efficiency leads to the fall in Marginal cost curve from M1 to M2. Due to this, the overall profit of the firm increases.
If you need more information or if something is still unclear, let me know.
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JazakallahOligopolistic is a type of imperfect market where there exist small no. of firms which competite with each other. The demand curve for the Oligopolistic market is kinked and is represented as below:
View attachment 35897
Now the special feature of this demand curve is that it is kinked/discontinued. The reason being so is the price rigidity in case of Oligopolistic market structure. The demand curve from the intial point till the point it gets kinked is price Elastic. This is because the firms would be reluctant to increase the price. If a firm increases a price, it'd lose its customers as the other rival firms would not change the price level. However, below the kinked point is the demand curve which is price in-elastic. The reason being the fact that if a firm reduces price, it'd gain more customers (According to law of demand) However, as a result of reduction in price, the competitor would further reduce the price and this would thus lead to a price war in which consumers would benefit. Therefore the only logical way of increasing the profit when it comes to Oligopolistic market is to reduce the overheads. The principle of Dynamic efficiency leads to the fall in Marginal cost curve from M1 to M2. Due to this, the overall profit of the firm increases.
If you need more information or if something is still unclear, let me know.
and can you explain more on why the curve is shifting ... and Dynamic Efficiency.....
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is it because of the long run ???Jazakallah
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Yes sure.Jazakallah
Dynamic Efficiency is the way a firm shifts its MC curve downwards as to increase the level of profit. It can include product innovation, product extension, new research and development and adding new features to the product. Yes it's achieved only in the Long run. The curve is shifting due to Dynamic Efficiency, if you're talking about the MC curve, that is.
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hey guys can u recommend me a good book to study for a2 eco
currently i am studying from stanlake and sloman
currently i am studying from stanlake and sloman
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Oxford revision guide its good
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Why not read it from the book? (Peter Simpson)
its very brief