A market is NOT contestable if:
A) all producers have access to the same technology.
B) consumers respond quickly to a price change.
C) existing firms cannot respond quickly to entry by lowering their price.
D) there are sunk costs.

Question

Quizplus · Accepted Answer

Sunk costs are costs that cannot be recovered if a firm exits the market. If there are sunk costs in a market, it becomes less contestable because potential entrants would be cautious about entering the market due to the risk of losing their investment if they fail to establish a foothold. Therefore, option D describes a scenario where a market is not contestable.

A Market Is NOT Contestable If