Scenario 15-2 Consider a Local, Privately-Owned Electrical Cooperative Named Poweshiek Power Company

question 273

Multiple Choice

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 a natural monopoly.
Iii) PPCo would experience higher profits if it were government-run.

• A) i) and ii) only
• B) ii) and iii) only
• C) i) and iii) only
• D) i), ii), and iii)

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Definitions:

Price Discrimination

A pricing strategy where a seller charges different prices for the same product or service to different customers, based on factors such as willingness to pay, location, or purchase volume.

Economies of Scale

The cost advantage that arises with increased output of a product, where the average cost per unit decreases as scale of production increases.

Barriers to Entry

Factors that prevent or hinder companies from entering a specific market, such as high startup costs or stringent regulations.

Profit-Maximizing

a strategy or process where a firm determines the price, output level, and production scale that lead to the highest possible profit, under certain market conditions.