The hypothesis that suggests that one firm who fears the arrival of competitors is all that is required to experience most of the benefits of perfect competition is the
A)law of demand hypothesis.
B)all-about-me hypothesis.
C)contestable markets hypothesis.
D)rational expectations hypothesis.

Question

Quizplus · Accepted Answer

The contestable markets hypothesis suggests that a market with few barriers to entry and exit will operate as if it were perfectly competitive, even if there is only one firm present. This is because the fear of potential new entrants will prevent the existing firm from charging excessive prices or earning excessive profits.

The Hypothesis That Suggests That One Firm Who Fears the Arrival