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)

Question

Quizplus · Accepted Answer

PPCo is likely a natural monopoly because it can meet the entire county's electricity needs with excess capacity, making it inefficient for new entrants to compete. New entrants would have a smaller market share due to PPCo's established dominance.

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