Discussion
Sweezy's model fails to explain:
Answer: A
Sweezy's kinked demand curve model explains why prices are rigid in an oligopoly (the demand curve has a kink at the going price, since rivals match a cut and ignore a rise), and it deals with interdependent decision making and, to an extent, non price competition. It fails to explain how the price was determined in the first place, since it only shows why the price stays where it is. The answer is how price is determined, option A. The kink arises because the demand is elastic above the going price and less elastic below it.
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