An industry in which there are low startup costs and a single firm prices its product very low for fear of new entry is called
A)an oligopoly.
B)a contestable market.
C)monopolistic competition.
D)potential entry.
E)a monopoly.

Question

Quizplus · Accepted Answer

A contestable market is one in which low barriers to entry and exit make it easy for new firms to come in and compete. The pricing strategy of the incumbent firm is to keep prices low in order to deter potential entry. This is different from a monopoly, where there is only one firm in the market with no close substitutes, and from monopolistic competition, where there are many firms selling differentiated products. An oligopoly is a market dominated by a few large firms. The concept of potential entry refers to the possibility of new firms entering a market.

An Industry in Which There Are Low Startup Costs and a Single