Monopolies typically earn economic profits

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Reference no: EM138321

Q1. Joe's search costs are $7 per search. He wants to buy a DVD player for his wife for Christmas, and the lowest price he's found so far is $200. Joe thinks one-third of the stores charge $300 for a DVD player, one-third charge $200, and one-third charge $185. Should Joe continue to search or buy a DVD player at a price of $200?
Please step me through this problem.

Q2. 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.

1. Will these monopolies typically earn economic profits?

2. Why do not other airlines enter these monopoly routes?

3. Is price discrimination likely? If so, what type (1st, 2nd, or 3rd degree)? Will price discrimination increase profits?

Reference no: EM138321

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