Refer to the Graph Shown

question 24

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 raises price from P₂ to P₁, its rival will not go along, then:

• A) the demand curve used by the firm for decision making is highly inelastic.
• B) it probably won't raise price, since doing so would cause sales to drop from Q₃ to Q₁.
• C) it probably will raise price, since lower output means lower costs and greater profit.
• D) D₂ is the relevant demand curve.

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Convert

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