The theory of contestable markets concludes that
A)a small number of firms in an industry is strong evidence that they will perform in a noncompetitive way.
B)even if the number of sellers in an industry is small, profits can be zero in the industry.
C)inefficient producers can survive in a contestable market.
D)a firm in a contestable market will sell at a price above marginal cost.

Question

Quizplus · Accepted Answer

The theory of contestable markets suggests that even with a small number of sellers in an industry, profits can be driven to zero if the market is contestable. This is because potential entrants could enter the market and drive prices down if the incumbent firms try to earn monopoly profits. Therefore, it is possible for a small number of sellers to operate competitively in a contestable market.

The Theory of Contestable Markets Concludes That