Suppose that airplane flights are provided at a constant marginal cost PC. (That is, the marginal cost curve in the airline industry is flat at the price PC.) If there were a single monopoly airline, it would sell tickets at the higher price PM. Suppose that the government requires all airlines to charge the price PM and forbids new entry into the airline industry.

a. Show the consumers' surplus, the producers' surplus, and the deadweight loss.

b. Now suppose the airlines discover that they can make themselves more attractive to customers by offering costly "extras" ranging from in-flight movies to the scheduling of frequent flights that better accommodate travelers' schedules. By how much does the marginal cost curve rise and why?

c. In part (b), what happens to the demand for airline flights? Recalculate the consumers' and producers' surpluses.

d. In part (c), is it possible that the net social gain could be greater than it is under competition?