If an oligopoly market is contestable and new firms enter,the
A)Market power of the former oligopolists will be reduced.
B)Number of firms in the industry will decrease.
C)Former oligopolists will raise their prices.
D)Profitability of the industry will increase.

Question

Quizplus · Accepted Answer

If the oligopoly market is contestable, it means that new firms can enter and compete with the existing firms. This increased competition will reduce the market power of the former oligopolists as they have to now compete with new firms. As a result, they may not be able to charge high prices or make super-normal profits. Therefore, choice A is the best answer.

If an Oligopoly Market Is Contestable and New Firms Enter,the