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Explain the kinked demand curves

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Firms in an industry view their residual demand as kinked at the market price p*, so that demand for each firm i is given by D i(p)=D(p)/N for p≤p* and Di(p)=0 for p>p*. (D(p) is market demand and N is the number of firms).

a) Describe what is necessary for firms to have kinked demand curves with a kink at the market price p*.

b) What market prices could be equilibrium prices given such kinked demand curves?

Reference no: EM133067151

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