Scenario 15-2
Consider a local, privately-owned electrical cooperative named Poweshiek Power Company (PPCo). PPCo has just completed a clean-coal-burning electrical power plant in Iowa. Currently, PPCo can meet the electricity needs of all residents in the county. In fact, its capacity far exceeds the needs of the county. After just a few years of operation, the shareholders of PPCo experienced incredibly high rates of return on their investment due to the profitability of the corporation.
Refer to Scenario 15-2. Which of the following statements is most likely to be true?
(i)
New entrants to the market know they will have a smaller market share than PPCo currently has.
(ii)
PPCo is most likely experiencing rising marginal cost.
(iii)
PPCo is a natural monopoly.
(iv)
PPCo is most likely experiencing declining average total cost.
A. (i), (ii), and (iii) only
B. (i) and (ii) only
C. (i), (iii) and (iv) only
D. (i), (ii), (iii), and (iv)Refer to Table 15-1. Assume this monopolist's marginal cost is constant at $12. What quantity of output (Q) will it produce and what price (P) will it charge?
A. Q = 4, P = $26
B. Q = 4, P = $29
C. Q = 5, P = $23
D. Q = 7, P = $17
Refer to Table 15-9. At the profit-maximizing price, how much profit will the monopoly earn?
A. $12
B. $8
C. $10
D. $14
Refer to Table 15-18. The monopolist’s marginal revenue is
A. always more than the price of its good.
B. sometimes more and sometimes less than the price of its good.
C. always less than the price of its good.
D. always equal to the price of its good.
