Answer to Question #60399 in Microeconomics for Bob

Question

Suppose a small regional airport is served by one of the major airlines, and a new low-cost airline enters the market. If the major airline cuts its air fares in this market to levels that are below its marginal cost in response to the other firm's entry, then the major airline may be engaging in

a. parallel conduct.
b. parallel pricing.
c. predatory pricing.
d. unlawful collusion.

Answer 1

c. predatory pricing.
The reducing of air fares by major airline to levels that are below its marginal cost leads to the extrusion of new low-cost airline from the market. So it is an example of predatory pricing.