If a market is contestable, how does the equilibrium differ from that of a monopoly?
What will be an ideal response?
A contestable market occurs when the firms in a market face potential entry from other firms due to low barriers to entry. While a monopoly free from the threat of entry will charge a high price and maximize economic profit, the firm or firms in a contestable market will keep price low and quantity produced high to deter potential entry by other firms outside the market. This benefits consumers, who enjoy near-competitive levels of output and a competitive market price.
You might also like to view...
Consider an economy that is greatly dependent on the U.S. economy for consumer goods and durables. Inflation will increase in the economy if:
A) the dollar appreciates vis-à-vis its own currency. B) the U.S. goes into a recession. C) the dollar depreciates vis-à-vis its own currency. D) the country adopts dollar as its official currency.
Andrew has the utility of wealth curve shown in the above figure. He owns an SUV worth $30,000, and that is his only wealth. There is a 10 percent chance that he will have an accident within a year. If he does have an accident, his SUV is worthless
What is Andrew's expected wealth? A) $30,000 B) $27,000 C) $20,000 D) zero