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Basic Question 3 of 17
In the kinked demand curve model, ______ is (are) likely to change when there is a small change in cost.
B. price only
C. neither price nor quantity
A. quantity only
B. price only
C. neither price nor quantity
User Contributed Comments 9
| User | Comment |
|---|---|
| Khadria | Kinked Demand Curve tells about the behavior when change in "price" is there. It tells nothing about the "COST". Hence change in cost has no affect on price and quantity. |
| ScottMW | Yes it does. It shows that if cost (as represented by the MC curve) shifts up but stays within the MR "disconnect", it will not effect equilibrium price and quantity. |
| rabt2 | very tricky question...the answer is indeed correct |
| bidisha | think of car manufactureres |
| gill15 | Got confused for a second. We're thinking of the vertical portion of the MR curve. When MC increases or decreases the equilibrium P and Q remain the same. Good Question. |
| fzhou | Agree with ScottMW! Since MR curve is discontinuous at the kink point of Demand curve, there's no price/quantity value within the discontinuous domain. Therefore even though MC curve moves in the discontinuous area, it will not affect price or quantity. |
| Tashen111 | Please explain someone :-( ... I thought that an increase in Costs (an upward shift in the marginal cost curve) would cause the price to increase without changing the demand (i.e. an upward movement along the vertical portion of the MR curve) as the new price and quantity are determined by the point where MR=MC... Am i missing something? Or am i overthinking this one? |
| chesschh | Look at the graph in the reading. When MC0 moves to MC1, price and quantity remain the same. This shows a "small change" |
| choas69 | watch the kinked demand curve by ross mcglothlin in utube he is good. |
I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
Learning Outcome Statements
explain supply and demand relationships under oligopoly, including the optimal price and output for firms as well as pricing strategy
CFA® 2024 Level I Curriculum, Volume 1, Module 1.