Scenario 15-2
Consider a local, privately-owned electrical cooperative named Minny County Megawatts (MCM, LLC). MCM has just completed a natural-gas-burning electrical power plant in the Midwest. Currently, MCM 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 MCM experienced incredible 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 MCM currently has.
(ii)MCM would experience higher profits if it were government-run.
(iii)MCM is a natural monopoly.
A) (i) and (ii) only
B) (ii) and (iii) only
C) (i) and (iii) only
D) (i), (ii), and (iii)

Question

Quizplus · Accepted Answer

MCM is a natural monopoly since it can meet the electricity needs of all residents in the county with its excess capacity. New entrants to the market would know they have a smaller market share than MCM. However, there is no evidence to suggest that MCM would experience higher profits if it were government-run.

Scenario 15-2 Consider a Local, Privately-Owned Electrical Cooperative Named Minny County Megawatts