A Firm That Is a Natural Monopoly

question 102

Multiple Choice

A firm that is a natural monopoly:

• A)is not likely to be concerned about new entrants eroding its monopoly power
• B)is not enjoying economies of scale
• C)it tends to drive down wages
• D)can lower its average total cost if more firms enter the market

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Definitions:

Profitability Index

A financial tool used to determine the desirability of an investment or project, calculated as the present value of future cash flows divided by the initial investment.

Present Value

The present value of a future amount of money or series of payments, calculated based on a certain rate of return.

Initial Investment

The amount of money used to start a business or project.

Cash Operating Costs

The expenses a company incures during its day-to-day operational activities, usually excluding non-cash costs like depreciation.