What kind of elasticity of demand is faced by the oligopolistic firm?

The correct answer is High elasticity for price rise but less elasticity for price cuts.

Key Points

•  The elasticity of demand faced by an oligopolistic firm depends on various factors, including the nature of the product or service being sold, the level of competition in the market, and the degree of substitution available to customers.
• However, the elasticity of demand faced by an oligopolistic firm can vary depending on the specific market conditions.
• For example, if there are close substitutes available for the product or service being sold, customers may be more sensitive to price changes, and the firm may face more elastic demand.
• A situation where the demand for a product or service is highly elastic for price increases, but less elastic for price cuts is known as a "backwards bending" demand curve.
• This means that as the price of the product or service increases, the quantity demanded decreases at a faster rate than the increase in price, leading to a high elasticity of demand.
• However, as the price of the product or service decreases, the quantity demanded does not increase at a proportional rate, resulting in a less elastic demand.

Hence, the correct answer is high elasticity for price rise but less elasticity for price cuts.