1. At the beginning of air travel, the market was highly regulated, and the entry of new firms was tightly controlled, and airfares were set by regulation. Let's look at the impact of deregulation and the introduction of low-cost carriers on the price of tickets and number of tickets sold in a year on a specific route, say, Columbus to Chicago. Demand for this route is given by = 1,500 3. The long run average cost per passenger on this route is $200.

A. If the few airlines that did exist at the time prior to deregulation acted as a cartel, they would be able to charge monopoly prices for this route. Find the:

i) of tickets (quantity) provided by a monopolist

ii) The monopolist's price per ticket

B. Deregulation allowed low-cost and regional airlines to step into this market. Imagine that enough of these firms enter that the market is now operating under perfect competition. Find the:

i) The perfectly competitive firm's price per ticket

ii) Number of tickets (quantity) provided by a perfectly competitive market

C. Compute the change in consumer surplus as a result of moving from the monopolistic outcome to the perfectly competitive one. Remember, in order to compute consumer surplus, it helps to use a diagram or graph, and you need to calculate the price at which the quantity demanded would be 0.