CFA Practice Question
In which of the following markets are economic profits zero in the long run?
II. Monopolistically competitive markets
III. Contestable markets
I. Price-taking markets
II. Monopolistically competitive markets
III. Contestable markets
A. I and II
B. I and III
C. I, II and III
Explanation: In all of these markets, barriers to entry and exit are low, so abnormal economic profits cannot prevail for very long. In the long run, economic profits in all of these markets equal zero, so firms earn only the normal rate of return on their resources.
User Contributed Comments 8
| User | Comment |
|---|---|
| cahiz84 | What is a contestable market? |
| Yannicklin | Contestable Market: [1] Very low Entry and Exit Costs [2] Has a small number of sellers that produce at minimum costs and earn normal profits.. |
| Lamkerst | Contestable market is a regulated monopoly. From Wikipedia: Contestable market is a market served by only one firm, but with mandated "competitive" pricing, so as to escond the monopoly held by said firm on said market. |
| atemple315 | I wouldnt want to rely on Wikipedia for my CFA - per the Glossary in the study material - "Contestable Market - A market in which firms can enter and leave so easily that firms in the market face competition from potential entrants". Doesnt sound like a monolpoly to me :-)... |
| gill15 | I love wikipedia...dont know why everybody hates on it....gonna go there right now |
| tricorp | Lol investopedia ftw! |
| thebkr7 | ^UpVote Investopedia xD |
| romankuzyk | Does "Contestable markets" appear in the curriculum Microeconomics portion? Just saying... |