a level multiple choice question, please help! Watch

zomgleh
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A firm charges the maximum price it is able to charge without attracting competition from new
entrants.
In which type of market does this firm operate?
A a contestable market
B a monopolistically competitive market
C a monopsonistic market
D a perfectly competitive market

apparently the answer is A.
I just don't understand how since in a contestable market, the threat of potential entrants is overriding!
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Magic Dust
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I don't understand why you have asked this in two separate threads....

Exactly that, the firm cannot charge a higher price because other firms will see that they could gain customers, depending on their PED. So even if the firm could sell at a higher price and still have customers, it doesn't to make sure that competitors don't enter the market.
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blatchcorn
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I really wouldn't worry about the answer - you don't need to know it for the exam.
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Jam4kate1991
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(Original post by zomgleh)
A firm charges the maximum price it is able to charge without attracting competition from new
entrants.
In which type of market does this firm operate?
A a contestable market
B a monopolistically competitive market
C a monopsonistic market
D a perfectly competitive market

apparently the answer is A.
I just don't understand how since in a contestable market, the threat of potential entrants is overriding!

It's one whole statement, with no comma's. It's saying the firm is charging upto the point at which any higher prices would mean a new firm would enter the market. That is to say, a market may be contestable, however with a sole firm in it that is likely benefitting from economies of scale, the incentive to enter it is how along with cstartup and sunk costs to consider.
Therefore, I see this as a reasonable explanation to why the answer is A.
You have to read the question carefully.
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