Firms in a perfectly contestable market will earn higher profits than firms in markets that are not perfectly contestable.

Question

Quizplus · Accepted Answer

In a perfectly contestable market, there is freedom of entry and exit of firms, leading to intense competition and zero economic profits in the long run. Therefore, firms in such a market will not earn higher profits compared to firms in markets that are not perfectly contestable.

Firms in a Perfectly Contestable Market Will Earn Higher Profits