The basic idea of the theory of contestable markets is that when the cost of entry and exit is very low, the threat of entry can be sufficient to produce an allocation similar to the one we see under
A)Monopoly
B)Monopolistic competition
C)Perfect competition
D)Oligopoly

Question

Quizplus · Accepted Answer

The theory of contestable markets suggests that when the cost of entry and exit is low, a market can approximate the outcomes of perfect competition, even in the presence of only a few firms. This is because the threat of new firms entering the market will prevent existing firms from raising prices above the competitive level. Therefore, the best choice is C)Perfect competition.

The Basic Idea of the Theory of Contestable Markets Is