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    Price Discrimination and Economic Profits

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    Many airline routes worldwide are served by only one airline (a monopoly). Within the U.S., these are often from a small or mid-sized city to a major carrier hub and frequently operated by a regional carrier under contract to the larger airline.
    Will these monopolies typically earn economic profits?
    Why do not other airlines enter these monopoly routes?
    Is price discrimination likely? If so, what type (1st, 2nd, or 3rd degree)? Will price discrimination increase profts?

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    Solution Preview

    Will these monopolies typically earn economic profits?

    Yes, one key characteristic about monopoly is that they earn economic profits. When you think about it, it is fairly obvious. If a market is competitive (i.e. lots of sellers selling the same good), no one could make any profit because if you sell higher, others will sell lower ...

    Solution Summary

    Price discrimination and economic profits are examined.