Refer to the graph shown. If a firm operating as if it were faced with a kinked demand curve believes that if it lowers price from P2 to P4, its rival will match the price cut, then:
A. D1 is the relevant demand curve.
B. the demand curve used by the firm for decision making is highly elastic.
C. it probably won't lower price, since the percentage decline in price will exceed the percentage increase in quantity sold.
D. it probably will lower price, since doing so will increase sales.
Answer: C
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