Refer to the Graph Shown

question 88

Multiple Choice

Refer to the graph shown. If a firm operating as if it were faced with a kinked demand curve believes that if it lowers price from P₂ to P₄, its rival will match the price cut, then:

• A) the demand curve used by the firm for decision making is highly elastic.
• B) it probably will lower price, since doing so will increase sales.
• C) it probably won't lower price, since the percentage decline in price will exceed the percentage increase in quantity sold.
• D) D₁ is the relevant demand curve.