$6.$ Questions and Problems $6$

Which of the following is a conclusion that has been drawn from the contestable market theory?

Firms are encouraged to produce at their lowest ATC

and set a price above marginal cost, thereby not allowing the marginal cost curve to intersect ATC

at the minimum point.

Despite a small number of sellers, profit can never be zero.

Inefficient producers cannot survive. Cost inefficiencies invite lower$-$cost producers into the market, driving price down to minimum ATC

and forcing inefficient firms out.

Competition is not present in a contestable market.