Micro A2 - Contestability

Question 1

Characteristics of a contestable market

Answer 1

• No barriers to Entry / Exit.
• Low sunk cost.
• Firms behaviour influenced by the threat of new entrants.
• Firms may limit profit to discourage new entrants.
• Firms attempt to erect artificial barriers to entry.

Question 2

Implications of contestable markets for the behaviour of firms

Question 3

Types of barriers to entry

Question 4

Types of barriers to exit

Question 5

Sunk costs

Question 6

The degree of contesability