Apila Hömewrk: Mohopblilstie Competition, Ollgopoly, and Game Theory Due Today a

Question

Apila Hömewrk: Mohopblilstie Competition, Ollgopoly, and Game Theory Due Today at 1159 PM EDT Back to Assignment Attempts: Average: 12 11. Contestable markets True or False: If a firm is operating in a contestable market, it should operate at the efficient production level and earn zero pront. O True O False The dentestable market model has important policy implications. If there is concern that a market is not sumciently competitive, what can policymakers do to increase competition in a given industry? Check all that apply Increase the amount of regulation on barriers to entry Decrease entry barriers Decrease the amount of regulation on barriers to entry ave & Contin Contnue without sa

Explanation / Answer

(1) False

In a contestable market, entry and exit are free (i.e. perfect competition and monopolistic competition). Therefore, in such a market, in long run equilibrium, price equals ATC and profit is zero. But while in perfect competition, ATC is minimum in long run (so production occurs at minimum efficient scale), in monopolistic competition, ATC is not minimized in long run (so production is not at efficient scale, leading to excess capacity).

(2) The following are true (in order to increase competitiveness by attracting entry):

- Decrease entry barriers

- Decrease the amount of regulation on barriers to entry

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