Scenario 14-1
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 14-1.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.

Question

Quizplus · Accepted Answer

The fact that C.R.Evans has already developed and operates a highly profitable subway system in the region indicates a natural monopoly, meaning it would be difficult for new entrants to the market to gain market share. Additionally, since there are plenty of seats on the subway and it is never crowded, it is unlikely that C.R.Evans is experiencing increasing average total cost, as their capacity exceeds the needs of the city. Therefore, only options (i) and (iii) are likely to be true.

Scenario 14-1 Consider a Transportation Corporation Named C.R.Evans That Has Just Completed