14. This question is referring to the kinked demand curve model which leads to a marginal reveune curve such as the one shown to the right. The kink in the demand curve (which is what causes the gap in the MR curve) comes from the idea that if the firm raises prices no other firms will follow. Since it will be the only firm with higher prices demand will fall off rapidly leading to the more elastic demand curve above current price. However, if it lowers price the other firms will also reduce price so as not to lose market share. As a result, demand is much more inelastic below current prices. Since demand changes radically at price falls MR drops leaving a "gap" in the curve.

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