The following graph shows Happyland's kinked demand curve (D1D2) and the resulting marginal revenue curve (MR1MR2). Happyland is one of five amusement parks on Sunshine Island. The following graph shows Happyland's kinked. Happyland is one of five amusement parks on Sunshine Island.The graph also shows two possible marginal cost curves (MC1 and MC2).Īssume the following cost data are for a purely competitive producer:ġ & \$ 60.00 & \$ 45.00 & \$ 105.00 & \$ 45 \\Ī. The following graph shows Happyland's kinked demand curve (D1-D2) and the resulting marginal revenue curve (MR1-MR2). If Happyland's marginal cost decreased from MC1 to MC2 on the graph, Happyland would decrease its price. The basic principle behind the kinked demand curve model explains why the D2 portion of the kinked demand curve is relatively more elastic than the D1 portion. Therefore, if one of Happyland's competitors decreases its price to below the price you just found for Happyland, Happyland will not decrease its price. The graph also shows two possible marginal cost curves (MC1 and MC2).ģ0 QUANTITY (Millions of tickets per year)Īccording to the kinked demand curve model, if one firm increases its price, other firms will do likewise to retain their market share, but if one firm decreases its price, other firms will not follow suit.
SOLVED: Happyland is one of five amusement parks on Sunshine Island.
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