Lesson 4.5.1

4.5.1 Contestable markets and their efficiency Quiz: OCR Economics, Unit 4

20 questions

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Lesson 4.5.1, Contestable markets and their efficiency: 20 multiple choice questions for the OCR Economics (H460), Unit 4: Market structures, written with Revision Ninja.

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The 20 questions

  1. What essential condition must exist for a market to be considered contestable?

    • High sunk costs
    • Brand loyalty
    • Freedom of exit
    • Economies of scale

  2. What entry tactic involves firms entering a market temporarily to capture supernormal profits?

    • Hit-and-run entry
    • Limit pricing
    • Predatory pricing
    • Horizontal integration

  3. Which price and output condition prevents new firms from entering a contestable market?

    • P = MC
    • AR = AC
    • MR = MC
    • MR = 0

  4. What drives incumbent firms to act efficiently in a contestable market?

    • Government regulation
    • Threat of entry
    • High advertising budgets
    • Collusive agreements

  5. Which expenditure represents a sunk cost for a firm exiting an industry?

    • Unrecoverable advertising
    • Commercial property
    • Resellable vehicles
    • Raw materials

  6. Which type of efficiency is achieved when price equals marginal cost in a market?

    • Productive efficiency
    • Allocative efficiency
    • Dynamic efficiency
    • Technical efficiency

  7. Where does a firm produce to achieve maximum productive efficiency?

    • Maximum total revenue
    • Minimum marginal cost
    • Point where MR=0
    • Minimum average cost

  8. What is the main objective of government deregulation in a monopoly market?

    • Increase sunk costs
    • Restrict new entrants
    • Increase contestability
    • Maximise tax revenue

  9. How has the growth of e-commerce affected market contestability for retailers?

    • Eliminated competition
    • Raised sunk costs
    • Increased contestability
    • Decreased contestability

  10. What type of inefficiency is reduced when market threat forces managers to minimise waste?

    • Allocative inefficiency
    • Dynamic inefficiency
    • X-inefficiency
    • Productive inefficiency

  11. What level of profit do firms in a contestable market earn in long-run equilibrium?

    • Normal profit
    • Monopoly profit
    • Subnormal profit
    • Supernormal profit

  12. Why might highly contestable markets suffer from low dynamic efficiency?

    • High sunk costs
    • Excessive regulation
    • No supernormal profit
    • Lack of competition

  13. What pricing strategy involves setting prices below average variable cost to force rivals out?

    • Price discrimination
    • Limit pricing
    • Predatory pricing
    • Cost-plus pricing

  14. What is the primary focus when assessing the contestability of a market structure?

    • Current market share
    • Total industry revenue
    • Existing firm count
    • Potential competition

  15. What feature allows firms to exit a contestable market without incurring financial losses?

    • Economies of scale
    • High fixed costs
    • Zero sunk costs
    • Patents and copyright

  16. Which asset is least likely to form a sunk cost for an exiting business?

    • Specialised machinery
    • Delivery vans
    • Custom software
    • Brand advertising

  17. What happens to consumer surplus when a market becomes more contestable?

    • It increases
    • It reaches zero
    • It decreases
    • It remains unchanged

  18. What barrier exists when potential entrants lack equal access to technical knowledge?

    • Legal barrier
    • Asymmetric information
    • Limit pricing
    • Sunk cost

  19. Why are natural monopoly markets typically considered non-contestable?

    • High sunk costs
    • Perfect information
    • Homogeneous products
    • Low entry barriers

  20. What practice involves using profits from one market to cover losses in another contestable market?

    • Cross-subsidisation
    • Limit pricing
    • Non-price competition
    • Price leadership

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