In 2023, Sovereign Rail, the exclusive operator of passenger services on the high-speed rail corridor between Northport and Southwood, reported a 22% increase in annual operating profits despite a 12% reduction in scheduled services. Shortly after, the company announced an 18% increase in peak-time fares.
From this information, which one of the following is most likely to be correct?
Sovereign Rail is operating at allocative efficiency because its annual operating profits rose by 22%22\%22%.
The 18%18\%18% fare increase acts as a structural barrier to entry in the regional passenger rail market.
The regional passenger rail market between Northport and Southwood is highly contestable with a low concentration ratio.
Sovereign Rail's ability to raise prices and reduce service frequency reflects a high degree of monopoly power protected by high barriers to entry.
136 exam-style questions on AQA A Level Economics 1.5 Perfect competition, imperfectly competitive markets and monopoly, covering 1.5.1 Market structures, 1.5.2 The objectives of firms, 1.5.3 Perfect competition, 1.5.4 Monopolistic competition (A-level only), 1.5.5 Oligopoly (A-level only), 1.5.6 Monopoly and monopoly power, 1.5.7 Price discrimination (A-level only), 1.5.8 The dynamics of competition and competitive market processes, 1.5.9 Contestable and non-contestable markets (A-level only), 1.5.10 Market structure, static efficiency, dynamic efficiency and resource allocation (A-level only), and 1.5.11 Consumer and producer surplus (A-level only). Each one has a worked solution and a mark scheme showing where the marks go.