Firms That Operate in Contestable Markets

question 27

Multiple Choice

Firms that operate in contestable markets:

• A) still price competitively since they face the threat of competition from new entrants.
• B) are pure monopolies that set price equal to consumers' highest willingness to pay.
• C) earn zero economic profits.
• D) face more competition when fixed costs are high.

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Definitions:

Frictional Unemployment

Unemployment that occurs when workers are between jobs or are entering the workforce for the first time; it is often seen as a natural and necessary part of a healthy economy.

Seasonal Unemployment

This refers to the phenomenon where individuals temporarily lose their jobs due to changes in the season, common in industries like agriculture or tourism.

Nominal Wage

Nominal wage is the amount of money that an employee receives from an employer as payment for work, without adjusting for inflation.

Real Wage

The purchasing power of wages, taking into account the effects of inflation or deflation, indicating the quantity of goods and services that can be bought.