In Figure 12.6, 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?
A. The entry deterrence outcome
B. The passive duopoly outcome
C. Fly Smart would earn the same profit.
D. There is insufficient information.
Answer: A
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