There is only one firm in the market. The economist analyzing that market has said she would expect the price to equal the firm's average total costs.
A) She must be analyzing this market using a contestable market model.
B) She must be analyzing this market using a game theory model.
C) She must be analyzing this market using a cartel model.
D) She must not be an economist, because that answer is clearly wrong.

Question

Quizplus · Accepted Answer

In a contestable market model, even a monopolist will set prices equal to average total costs to deter entry by potential competitors, as the threat of entry keeps prices competitive.

There Is Only One Firm in the Market