X-inefficiency can occur because...

Managers tend to adopt satisficing behaviour

In a PERFECTLY CONTESTABLE market, firms in the long-run will be...

Both productively and allocatively efficient

Which of the following is NOT an advantage of a contestable market?

Increased advertising/market spend

One that cannot be recovered when leaving the industry

A contestable market is one in which...

... the threat of entry causes firms to behave differently

What is one of the biggest criticisms of Baumol's contestable market theory?

Both answer 1 and answer 2 are correct

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Contestable Markets

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Questions 12

Answers

1
Which of the following IS NOT a characteristic of a contestable market?
Low barriers to entry/exit
Access to same technology
Low sunk costs
High brand loyalty
2
X-inefficiency can occur because...
There is a surplus in the market
There is not perfect knowledge in the market
Managers tend to adopt satisficing behaviour
Firms profit maximise
3
Other than size, what else could explain the lower AC curve of the medium-sized firm?
Environmental taxes
Vertical integration
Allocative efficiency
Increased advertising
4
In a PERFECTLY CONTESTABLE market, firms in the long-run will be...
Neither productively nor allocatively efficient
Allocatively but not productively efficient
Both productively and allocatively efficient
Productively but not allocatively efficient
5
Normal profits are made where...
MR=0
AC=AR
P=MC
MC=MR
6
Which one of the following is NOT a method to improve contestability of markets?
Extending patent rights
Deregulation
Enforcing competition policy
Breaking up monopoly firms
7
A monopoly market structure can be classified as a contestable market
True
False
8
Which of the following is NOT an advantage of a contestable market?
Lower prices for consumers
Increased enterprise
Increased technological innovation
Increased advertising/market spend
9
What is a sunk cost?
One that must be paid to enter the market
The cost of obtaining a patent
One that must be paid to license products
One that cannot be recovered when leaving the industry
10
A contestable market is one in which...
... the threat of entry causes firms to behave differently
... there is perfect competition
... there is economic efficiency
... there is monopolistic competition
11
Using Baumol's theory, a market selling homogenous products can be highly contestable
False
True
12
What is one of the biggest criticisms of Baumol's contestable market theory?
Both answer 1 and answer 2 are correct
None of the above
The quality of entrepreneurship is not taken into account
Uncertainty and change isn't taken into account

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