A. Draw a Kinked Demand Curve Graph for ATT and Verizon. Show Prices and Costs on the vertical axis and Quantity on the horizontal axis. There will be 4 curves when you are finished: D(K) Demand (Kink), MR (K) Marginal Revenue (K), MC (A) Marginal Cost (ATT) and MC (V) Marginal Cost (Verizon). We will assume that ATT is the efficient firm and Verizon is the inefficient firm. (This is not based on fact, just because the graph must show 1 efficient firm, and 1 inefficient firm, both taking profits in this graph picture.) Make sure each curve takes the proper shape and passes through the point indicated below: 1. Demand (Kink) - Demand curve with slight slope above the kink and a steep slope below the kink. It touches each axis. (The kink is at a Price of $75 and a Quantity of 250,000. This implies the average person in Hampton Roads pays $75 for cell service monthly and the business has 250,000 accounts in Hampton Roads. 2. Marginal Revenue (Notch) - Revenue curve with the same shape as Demand above, but each part of the curve is twice as steep as that one. There is a notch created by two points at the top of the notch and the bottom of the notch. The point at the top is at a "Marginal Revenue" of $60 and a Quantity of $250,000. The point at the bottom is at a "Marginal Revenue" of $45 and a Quantity of $250,000. Draw a perfectly vertical line segment from the top point to the bottom point. This is the notch. 3) Marginal Cost (ATT) - Marginal Cost Curve (Nike Swoosh Shape) with a point at a "Cost" of $45 and Quantity of 250,000. 4) Marginal Cost (Verizon) - Marginal Cost Curve (Nike Swoosh Shape) with a point at a "Cost" of $60 and a Quantity of 250,000. B. Draw Economic Profit for Verizon with this rectangle: Top Left at 0 on the Price and Cost axis, top right at the Kink Price of $75, bottom left 0 on the price and cost axis, and bottom right at cost of $60. C. Draw Economic Profit for ATT with this rectangle: Top Left at 0 on the price and cost axis, top right at the Kink Price of $75, bottom left at 0 on the price and cost axis, and bottom right at a cost of $45. Answer this question by writing the answer I have provided below, at the bottom of your graph: "What is the point of the kinked demand curve?" "In a 2-firm oligopoly, each firm ignores the competitor's price increases, but matches the price decreases. This causes them to both charge the same kinked price. Because of the notch this creates in the marginal revenue curve, both an efficient firm and an inefficient firm can make economic profits. The inefficient firm (Verizon in this example) can stay in business even with higher cost than its competitor because its customers are charged the inflated kinked price