<p>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 <em>MR = MC</em> determines the equilibrium quantity, not the equilibrium price.</p>

CC BY-SA 4.0
2021-12-22T11:34:45.463Z
2021-12-22T11:34:45.463Z
VARulle
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<p>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.</p>
<p>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.</p>
<p>Can someone please help with what's correct?</p>

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2021-12-21T07:02:06.910Z
Can you please define the notation? E.g., what is MC3?
Giskard
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2021-12-21T16:52:52.970Z
MC = Marginal Cost
MR = Marginal Revenue
SH0203
CC BY-SA 4.0
2021-12-21T16:55:06.717Z
Yeah, I understand MC. What does MC**3** mean though, what does the 3 signify?
Giskard
<microeconomics><oligopoly>
Profit maximization of an oligopolistic firm
SH0203
# Profit maximization of an oligopolistic firm

(Asked by: username_0 on 2021-12-21)

[![enter image description here](https://i.sstatic.net/aemV0.png)](https://i.sstatic.net/aemV0.png)

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?

**Tags:** microeconomics, oligopoly

> **Comments:**
> **username_1**: Can you please define the notation? E.g., what is MC3?  
> **username_0**: MC = Marginal Cost MR = Marginal Revenue  
> **username_1**: Yeah, I understand MC. What does MC**3** mean though, what does the 3 signify?  

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## 1 answers

### Answer by username_2 on 2021-12-22. Score: 3

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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