In a Natural Monopoly, Throughout the Range of Market Demand

question 53

Multiple Choice

In a natural monopoly, throughout the range of market demand

• A)marginal cost is above average total cost and pulls average total cost upward.
• B)average total cost is above marginal cost and pulls marginal cost upward.
• C)marginal cost is below average total cost and pulls average total cost downward.
• D)there are diseconomies of scale.

Understand the components of a firm's capital, and their relative costs.

Calculate the after-tax cost of debt and understand its influence on the weighted average cost of capital (WACC).

Apply the dividend growth model to estimate the cost of common equity.

Differentiate between book value and market value and understand the relevance of each in calculating WACC.

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Definitions:

Condition

In contract law, a future, uncertain event that creates or extinguishes a duty of performance; a provision or clause in a contract that operates to suspend or rescind a party’s duty to perform.

Condition Precedent

A condition that operates to give rise to a contracting party’s duty to perform.

Close of Escrow

The finalization of a real estate transaction, where all conditions have been met and the property's title is transferred from the seller to the buyer.

Condition Subsequent

A condition in a contract that, when it occurs, terminates an existing obligation, making the contract's terms no longer binding.