4.1.5.9 Contestable and non-contestable markets Quiz: AQA Economics, Unit 1

The 20 questions

1. Which feature is essential for a market to be considered highly contestable?

   • High sunk costs
   • Low entry barriers
   • Many operating firms
   • Regulated maximum prices

2. Which type of cost cannot be recovered if a firm exits a market?

   • Variable costs
   • Marginal costs
   • Fixed costs
   • Sunk costs

3. Which strategy involves entering a profitable market and exiting rapidly when profits fall?

   • Predatory pricing
   • Hit-and-run entry
   • Collusive pricing
   • Limit pricing

4. A market is highly contestable when it is characterised by:

   • High sunk costs
   • Low sunk costs
   • High entry barriers
   • Significant brand loyalty

5. What constrains the pricing power of a monopoly in a contestable market?

   • High sunk costs
   • Regulated tariffs
   • Price ceilings
   • Threat of entry

6. A firm exits a market with unrecoverable capital assets worth £2 million. What is its sunk cost?

   • £1 million
   • £0
   • £2 million
   • £4 million

7. An airline route with leased aircraft and no exit barriers is best described as:

   • Non-contestable
   • Highly contestable
   • Perfectly competitive
   • A natural monopoly

8. Which factor most reduces the contestability of a market?

   • Leased equipment
   • High sunk costs
   • Perfect information
   • Low entry barriers

9. Why might a monopolist in a contestable market set prices below the profit-maximising level?

   • To raise barriers
   • To restrict output
   • To deter entrants
   • To increase costs

10. Which feature of real-world markets prevents perfect contestability?

    • Zero sunk costs
    • Asymmetric information
    • Factor mobility
    • Freedom of exit

11. Which characteristic is typical of a non-contestable market?

    • High sunk costs
    • Hit-and-run entry
    • Perfect mobility
    • Low entry barriers

12. Why does investing in specialised machinery with zero resale value reduce market contestability?

    • Eliminates scale economies
    • Creates sunk costs
    • Increases competition
    • Lowers entry barriers

13. Which item is the best example of a sunk cost for a firm?

    • Raw materials
    • Commercial premises
    • Delivery vans
    • Advertising campaign

14. Hit-and-run competition is most likely to occur in markets with which cost feature?

    • High fixed costs
    • Economies of scale
    • High sunk costs
    • Zero sunk costs

15. What term describes potential entrants influencing an incumbent's pricing without entering?

    • Tacit collusion
    • Potential competition
    • First-mover advantage
    • Predatory pricing

16. Market contestability primarily depends on the freedom of:

    • Price discrimination
    • Government ownership
    • Entry and exit
    • Collusive agreements

17. What enables a contestable market to remain dominated by a few large firms?

    • Legal monopolies
    • High sunk costs
    • Economies of scale
    • Heavy regulation

18. What pricing strategy deters hit-and-run entry in a contestable market?

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

19. Which feature directly reduces the contestability of a market?

    • Perfect information
    • High sunk costs
    • Low fixed costs
    • Homogeneous products

20. What must be low for hit-and-run entry to occur in a market?

    • Sunk costs
    • Average fixed costs
    • Variable costs
    • Marginal costs

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