Economics · Sweezy Kinked Demand Curve
Assertion (A): The kinked demand curve model (Sweezy) predicts price rigidity in oligopoly but does not explain how the prevailing price is determined in the first place. Reason (R): In Sweezy's model, the kink arises because rivals match price cuts but ignore price increases, creating a discontinuity in the MR curve through which the MC curve can shift without changing the optimal price.
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1A is false but R is true
- 2A is true but R is false
- 3Both A and R are true but R is not the correct explanation of A
- 4Both A and R are true and R is the correct explanation of A✓
Correct answer
Both A and R are true and R is the correct explanation of A
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