Scenario 15-1
Consider a transportation corporation named C.R. Evans that has just completed the development of a new subway system in a medium-sized town in the Northwest. Currently, there are plenty of seats on the subway, and it is never crowded. Its capacity far exceeds the needs of the city. After just a few years of operation, the shareholders of C.R. Evans experienced incredible rates of return on their investment due to the profitability of the corporation.
-Refer to Scenario 15-1.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 C.R.Evans currently has.
(ii)C.R.Evans is most likely experiencing increasing average total cost.
(iii)C.R.Evans is a natural monopoly.
A) (i) and (ii) only
B) (ii) and (iii) only
C) (i) and (iii) only
D) (i), (ii), and (iii)

Question

Quizplus · Accepted Answer

The scenario mentions that the new subway system has capacity far exceeding the needs of the city and is never crowded, indicating that the market may not have room for new entrants, making C.R. Evans a natural monopoly. Additionally, since C.R. Evans is experiencing incredible rates of return on their investment, it is unlikely that they are experiencing increasing average total cost. Therefore, statement (i) and (iii) are most likely true while statement (ii) is false.

Scenario 15-1 Consider a Transportation Corporation Named C.R. Evans That Has Just