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 argues that the ease of entry and exit can encourage new firms to enter the market and compete with existing firms, even in industries that are typically dominated by monopolies or oligopolies. As a result, the threat of increased competition can lead to lower prices and better product quality, similar to the outcomes we see under perfect competition. Therefore, choice C (perfect competition) is the best answer.

The Basic Idea of the Theory of Contestable Markets Is