Contestable market
- Created by: Tom
- Created on: 08-01-14 15:16
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- Contestable market
- The number of firms in the industry may vary from one to many
- Freedom of entry and exit
- some barriers to entry are innocent/ natural e.g. sunk costs of advertising
- Firms compete rather than collude
- Firms are short run profit maximisers... (MR=MC)
- Firms can produce homogeneous and non-homogeneous goods
- Perfect knowledge
- Abnormal profits can only be earned in the short run
- New firms will be attracted to the industry through abnormal profits
- Firms are attracted by Abnormal profit, hence to prevent competition a monopoly can charge normal profit in the short run.
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