If, in a given market of multiple producers, there is a positive gap between price and average cost (P AC) for an extended period of time, this would suggest that
A)there are many sellers in the industry.
B)there exists an oligopoly or cartel in the industry.
C)this is a contestable market.
D)the firm cannot be a monopolistic competitor.

Question

If, in a given market of multiple producers, there is a positive gap between price and average cost (P > AC) for an extended period of time, this would suggest that
A)there are many sellers in the industry.
B)there exists an oligopoly or cartel in the industry.
C)this is a contestable market.
D)the firm cannot be a monopolistic competitor.

Quizplus · Accepted Answer

A positive gap between price and average cost (P > AC) for an extended period of time suggests that there is limited competition in the market. This is often seen in industries with oligopolies or cartels where a few firms dominate the market and are able to set prices above their average cost without fear of competition driving prices down. In a contestable market, there would be no barriers to entry and firms would be forced to keep prices closer to their average cost to avoid new entrants. Monopolistic competition refers to a market where there are many sellers offering slightly different products, and prices tend to be closer to the average cost.

If, in a Given Market of Multiple Producers, There Is