If a market is contestable, then
A)a cartel will form in the industry.
B)economic profits are small or zero.
C)firms face a vertical demand curve.
D)there is a dominant firm in the market.
E)none of the above

Question

Quizplus · Accepted Answer

In a contestable market, barriers to entry and exit are low, allowing potential competitors to enter the market easily if they see an opportunity for profit. This threat of potential competition keeps economic profits low or at zero because existing firms must price their products competitively to deter new entrants.

If a Market Is Contestable, Then