The correct answer is: C. Oligopoly.
A kinked demand curve is a theoretical concept that explains the pricing behavior of firms in an oligopoly market. The curve is kinked at the current price, and firms are reluctant to raise prices above the kink because they fear losing market share to competitors. However, they are also reluctant to lower prices below the kink because they fear that competitors will not follow suit, and they will lose profits.
A monopoly is a market structure in which there is only one seller of a good or service. A discriminating monopoly is a type of monopoly in which the monopolist charges different prices to different consumers. Perfect competition is a market structure in which there are many sellers of a good or service, and the goods or services are identical.
In an oligopoly, there are a few large firms that dominate the market. These firms are interdependent, meaning that the actions of one firm can have a significant impact on the other firms in the market. This interdependence can lead to a kinked demand curve.
Suppose that a firm in an oligopoly is currently charging a price of $10. If the firm raises its price to $11, it is likely that some of its customers will switch to the products of its competitors. This is because the products of the firm’s competitors are very similar to its own, and the price difference of $1 is significant. As a result, the firm’s demand curve will be relatively elastic at the current price.
However, if the firm lowers its price to $9, it is unlikely that it will attract many new customers. This is because the products of the firm’s competitors are also very similar to its own, and the price difference of $1 is not significant. As a result, the firm’s demand curve will be relatively inelastic at the current price.
The kink in the demand curve occurs at the current price. The firm is reluctant to raise prices above the kink because it fears losing market share to competitors. However, it is also reluctant to lower prices below the kink because it fears that competitors will not follow suit, and it will lose profits.
The kinked demand curve model is a useful tool for understanding the pricing behavior of firms in an oligopoly market. However, it is important to note that the model is a simplification of reality. In reality, the demand curves of firms in an oligopoly are likely to be more complex than the kinked demand curve model suggests.