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Question 1: A coal burning power plant in upstate New York has been the only provider of power in the
region for many years. Recently, a plant that uses wind to create energy was built nearby. The wind
plant produces less energy than the coal plant but at a lower cost. Will the coal plant be able to
remain competitive in this new market environment?
A. Yes, if the coal plant sells energy at a price below its marginal cost.
B. Yes, if the coal plant's decreased output is still sufficient to recover costs.
C. No, the coal plant's customers will switch to the wind powered plant.
D. No, the coal plant will be forced to cut prices and operate at a loss.
Correct Answer: B
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