Which of the following is a conclusion that has been drawn from the contestable

Question

Which of the following is a conclusion that has been drawn from the contestable market theory?

Competition is not present in a contestable market.

Inefficient producers cannot survive. Cost inefficiencies invite lower-cost producers into the market, driving price down to minimum ATC and forcing inefficient firms out.

Despite a small number of sellers, profit can never be zero.

Firms are encouraged to produce at their lowest ATC and set a price above marginal cost, thereby not allowing the marginal cost curve to intersect ATC at the minimum point.

Explanation / Answer

we know that contestable market theory is concentrate that the entry is easy and exit is costless. That means the new firm will produce the product at the same price existing firm. also existing firm can easily dispose of their fixed asset by selling them.

So the market is contestable inefficient producers cannot survive. cost ineffeciencies invite lower cost producers in to the market, driving price down to minimum ATC and forcing inefficient firms out.

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