A single firm in a contestable market is limited in the amount of economic profit it can earn because there
A) are barriers to entry.
B) is collusion.
C) are no barriers to entry.
D) are government regulations limiting its profit.

Question

Quizplus · Accepted Answer

In a contestable market, the absence of barriers to entry means that new competitors can easily enter the market if they see an existing firm earning high profits. This potential competition limits the economic profits that a single firm can earn, as it must keep prices and profits at a level that does not attract new entrants.

A Single Firm in a Contestable Market Is Limited in the Amount