10. In the airline industry two important performance measures are: Available Seat Miles (ASM), which is a measure of an airline's capacity. It is equal to the number of seats multiplied by the number of miles flown. Cost per Available Seat Mile (CASM), which is calculated by taking all of an airlines operating expenses and dividing it by the total number of available seat miles produced. Here it is used as a proxy for average cost (AC). The industry cost curve for the domestic US market is given below. Firm 6 was the marginal producer. Firms 5 and 7 merged, estimating that it would result in $500 million in TOTAL cost savings. a. What is the expected CASM for the merged airline? b. What is the expected profitability for this airline? CASM (in cents) 14.52 13.39 13.09 12.55 12.20 11.58 11.27 2 3 4 5 7 37,232 74,036 185,232 296,428 354,131 470,819 555,606 Industry Capacity (ASM) in millionsWrite out the profit-maximization conditions for a monopolist to mark-up over price. That is, what is (P-MC)/P equal to if the monopolist is profit-maximizing. From there, solve for P-MC to give a measure of the degree to which the monopolist price is distorted from the long-run perfectly competitive price, P = MC. This is the distortion for a monopolist in a one-sided market. Now, refer to your notes on the markup rule for a profit-maximizing platform monopolist in a two-sided market. Is the platform monopolist's price on one side of the market more or less distorted than that for a monopolist in a one-sided market? Explain