Refer to the graph shown. If a firm operating as if it were faced with a kinked demand curve believes that if it raises price from P2 to P1, its rival will not go along, then:
A. it probably will raise price, since lower output means lower costs and greater profit.
B. D2 is the relevant demand curve.
C. the demand curve used by the firm for decision making is highly inelastic.
D. it probably won't raise price, since doing so would cause sales to drop from Q3 to Q1.
Answer: D
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