A contestable market is one in which
A) one or a small number of firms operate, but they face competition from potential entrants.
B) if a firm cuts its price, all other firms will follow the price cut.
C) a group of firms enter into an agreement to restrict output and raise prices.
D) one dominant firm sets the market price, and all other firms are price takers.

Question

Quizplus · Accepted Answer

A contestable market is characterized by the ease with which potential competitors can enter and exit the market, thus even a monopoly or an oligopoly can face competition if the barriers to entry are low enough. This competition comes not from actual entrants but the threat of potential entry if the existing firms become too profitable.

A Contestable Market Is One in Which