Question:

a) In Figure 12.6, Sole Choice Airlines 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.

Calculate Sole Choice’s total profit. [Show your work.] (2 points)

b) Suppose that Sole Choice discovers that a second airline is contemplating entering the market. If the

minimum market entry quantity is 130 passengers per day, what is Sole Choice’s profit when it commits

to the entry-deterring quantity? [Show your work.] (4 points)

c) Is “passive” duopoly better than the entry-deterring strategy for Sole Choice? Explain. (3 points)