A Contestable Market Is One in Which

question 127

Multiple Choice

A contestable market is one in which

• A) one or a small number of firms operate, but they face competition from potential entrants.
• B) if a firm cuts its price, all other firms will follow the price cut.
• C) a group of firms enter into an agreement to restrict output and raise prices.
• D) one dominant firm sets the market price, and all other firms are price takers.

---

Definitions:

Average Expenditure

Average expenditure is the amount of money spent per unit of goods or services purchased, calculated by dividing total expenditure by the total number of units bought.

Competitive Quantity

is the quantity of goods produced or services offered based on the equilibrium in a competitive market.

Wage Rate

The fixed amount of compensation or payment received by an employee from an employer in exchange for work performed.

Market Quantity

The total amount of a good or service that is bought and sold in a market.