A Contestable Market Is Similar to a Perfectly Competitive Market

question 59

Multiple Choice

A contestable market is similar to a perfectly competitive market in that there

• A)are barriers to entry.
• B)are no barriers to entry.
• C)can be only one firm in the market.
• D)will be no entry if the existing firm makes an economic profit.
• E)is a perfectly elastic demand.

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Definitions:

Strike Price

The set price at which an option contract can be bought (call) or sold (put) when it is exercised.

Underlying Stock

The stock that must be delivered when a derivative contract, like an option or futures contract, is exercised.

Initial Cost

The initial expenditure involved in purchasing an asset or starting a project.

Exercise Price

The established price at which an option holder may execute the purchase (in a call option scenario) or sale (when dealing with a put option) of the related security or commodity.