Final answer:
In economics, a situation with only one firm but no real barriers to entry is referred to as a contestable market. The absence of significant entry barriers means potential competition could enter, influencing the sole provider to act competitively. The correct answer to the presented question is A. contestable.
Step-by-step explanation:
In economics, a situation in which there is only one firm in the market but no real barriers to entry for other firms is referred to as a contestable market. This concept is closely related to the notion of monopolies and competition within a market. A monopoly is characterized by a single supplier that controls the entire market for a good or service, usually maintained by high barriers to entry that prevent other firms from entering and offering competition. Such barriers can be legal, technological, or natural, like the control of essential resources or the need for substantial capital investment.
In contrast, a contestable market, although it may currently have only one operating firm, is essentially open to competition due to the absence of significant barriers to entry. The threat of potential competition influences the behaviour of the existing firm, making it act more competitively than a monopolist would. The firm must set prices competitively and act efficiently to deter new entrants, as there are no obstacles that would prevent other firms from joining the market and competing. Therefore, the correct answer to the multiple-choice question is A. contestable.
Examples of contestable markets are not as common as those of monopolies or oligopolies, but they can occur in industries where new technologies reduce previous entry barriers, or where regulations change to encourage competition. As a result, contestable markets can lead to more efficient outcomes similar to those in a competitive market, even though there might be a sole provider in the short run.