Figure 8.10
-In Figure 8.10, airline Fly Smart is initially a secure monopoly between two cities X and Y at point M, serving 300 passengers per day at the profit maximizing price of $300 per ticket. Suppose that Fly Smart discovers that a second airline is contemplating entering the market. If the minimum market entry quantity is 130 passengers per day, which is more profitable, entry deterrence or the passive duopoly outcome?

Question

Quizplus · Accepted Answer

Entry deterrence is more profitable because Fly Smart can maintain its monopoly status and continue to serve 300 passengers at the profit-maximizing price, rather than sharing the market with a competitor.

Figure 8.10 -In Figure 8.10, Airline Fly Smart Is Initially a Secure