On this educational website, we are discussing the economic dynamics of monopolies within utility markets, using Southern California Edison as an example.### Understanding Monopoly Pricing StrategiesSouthern California Edison is a profit-maximizing monopolist that exercises monopoly power in its electricity distribution markets. When it comes to understanding how monopolistic pricing works, one key factor to consider is the scenario where the company earns positive economic profits within a given year. In such a scenario, what will be the price of electricity? Consider the following options:#### Options:1. **Be equal to the marginal cost of electricity.**2. **Be equal to the average total cost of electricity.**3. **Exceed both the marginal cost and the average total cost of electricity.**4. **Exceed the marginal cost of electricity but be equal to the average total cost of electricity.**### Explanation of Options:- **Marginal Cost of Electricity**: This is the cost added by producing one additional unit of electricity.- **Average Total Cost of Electricity**: This is the total cost divided by the number of units produced, which includes both the fixed and variable costs.### Understanding Positive Economic Profits:- **Positive Economic Profit**: This occurs when total revenue exceeds both the total explicit and implicit costs, indicating more than just breaking even.Given the provided options, for monopolists like Southern California Edison who earn positive economic profits, the chosen pricing will typically:- **Exceed Both the Marginal Cost and Average Total Cost of Electricity**: This scenario indicates that the monopolistic company sets a higher price to maximize profits, considering there is no competitive pressure to drive prices down to the marginal cost or average total cost.### Correct Answer:The correct option is that the price of electricity will **exceed both the marginal cost and the average total cost of electricity**, enabling the monopolist to grab positive economic profits.This teaching material helps in understanding how monopolistic companies can manipulate prices to ensure profits, unlike firms in a competitive market structure.

"A monopoly firm is a single seller of the commodity or service. This firm can influence the market…

Southern California Edison is a profit-maximizing monopolist that exercises monopoly power in its electricity distribution markets. If the company earns positive economic profits this year, the price of electricity will: be equal to the marginal cost of electricity. be equal to the average total cost of electricity. exceed both the marginal cost and the average total cost of electricity. exceed the marginal cost of electricity but be equal to the average total cost of electricity.

Southern California Edison is a profit-maximizing monopolist that exercises monopoly power in its electricity distribution markets. If the company earns positive economic profits this year, the price of electricity will: be equal to the marginal cost of electricity. be equal to the average total cost of electricity. exceed both the marginal cost and the average total cost of electricity. exceed the marginal cost of electricity but be equal to the average total cost of electricity.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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