Sweezy's+Kinked+D+curve.

We start out by assuming a firm is at present charging $45 and selling 3 units. This is the only point on its demand curve that the firm has accurate information for. It has the option of increasing or decreasing prices. What should it do? Much is determined by how other firms may react to it's pricing policies. Let's assume that other firms would keep their prices constant if the firm raised its price, but other firms would lower their prices if the first firm lowered its prices. Therefore the firm has 2 demand curves- an elastic one if it increased its price and an inelastic one if it lowered its prices. Draw a firm's AR and MR curves based on the following:

If it raised its price: P=47 Q=2 P=49 Q=1

If it lowers it's price: P=40 Q=4 P=35 Q=5 P=30 Q=6 P=25 Q=7

What you should get is something like this

Note that with this diagram significant changes in a firm's marginal costs may not change a firm's price which further enhances the price stability of the oligopolistic market.

What you should get is something like this

