3.3.10 Contestability

Question 1

How many firms are there in a contestable market?

Answer 1

Can be any where from many to only one.

Question 2

How high are the barriers to entry and exit in a contestable market?

Answer 2

There is freedom of entry and exit

Question 3

Will firms collude or compete in a contestable market?

Answer 3

Will compete, will not collude

Question 4

Do firms produce homogeneous goods or differentiated goods in a contestable market?

Answer 4

They can produce either

Question 5

When can abnormal profit be achieved in a contestable market and why?

Answer 5

Only in the short run due to hit and run competition