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I have some serious doubts between A and B. On one hand, given that each oligopolistic firm follows the same profit maximization rule as that of a monopolistic one, it's the basic rule of MR = MC, and then map the price from the demand curve which is price point A. Since the price will be determined along the demand curve and it will be determined at the kink, the answer should be option A.

However, even though firms maximize profit by producing that quantity where MC=MR, the firms will not change the price of their product as long as the marginal cost is between MC1 and MC3. Hence, B should be the answer.

Can someone please help with what's correct?

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  • $\begingroup$ Can you please define the notation? E.g., what is MC3? $\endgroup$
    – Giskard
    Dec 21, 2021 at 7:02
  • $\begingroup$ MC = Marginal Cost MR = Marginal Revenue $\endgroup$
    – SH0203
    Dec 21, 2021 at 16:52
  • $\begingroup$ Yeah, I understand MC. What does MC3 mean though, what does the 3 signify? $\endgroup$
    – Giskard
    Dec 21, 2021 at 16:55

1 Answer 1

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This is Sweezy's (1939) kinked demand curve model. In equilibrium, quantity is at F and price at A. I guess the answer B results from a misconception. The profit maximization equation MR = MC determines the equilibrium quantity, not the equilibrium price.

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