Consider a transportation corporation named C.R. Evans that has just completed the development of a new subway system in a medium-sized town in the Northwest. Currently, there are plenty of seats on the subway, and it is never crowded. Its capacity far exceeds the needs of the city. After just a few years of operation, the shareholders of C.R. Evans experienced incredible rates of return on their investment, due to the profitability of the corporation.
Which of the following statements are most likely to be true?
(i) New entrants to the market know they will earn a smaller piece of the market than C.R. Evans currently has.
(ii) C.R. Evans is most likely experiencing increasing average total cost.
(iii) C.R. Evans is a natural monopoly.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. (i), (ii), and (iii)
Answer: C
Microeconomics
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