How does contestable markets theory challenge orthodox market structure theory?
A)Contestable markets theory argues that firms do not maximize sales; orthodox market structure theory argues that they do.
B)Orthodox market structure theory places much greater weight than contestable markets theory on the number of firms in an industry as a major factor in determining a firm's behavior.
C)Contestable markets theory emphasizes product differentiation; orthodox market structure theory does not.
D)Contestable markets theory emphasizes nonprice competition; orthodox market structure theory does not.

Question

Quizplus · Accepted Answer

Contestable markets theory challenges orthodox market structure theory by focusing less on the number of firms in an industry and more on the ease of entry and exit from the market. This contrasts with orthodox theory, which emphasizes the importance of the number of firms in determining market behavior and competition levels.

How Does Contestable Markets Theory Challenge Orthodox Market Structure Theory