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Regulation lasted virtually unchallenged until the mid-1970's, when the Senate and subsequently the CAB began to question many aspects of this regulation. In view of President Carter's impending legislation to deregulate the airlines, the. CAB began to loosen its restrictions. In 1977 the CAB loosened its regulatory power by allowing easier route entry and pricing flexibility. With the passage of the Airline Deregulation Act of 1978 the fundamental regulatory environment began to change. In 1982 the CAB's domestic route licensing authority was eliminated freeing route entry and exit.

5 in this case yields: [c(X +Y)-lx(X'+ Y')J-lcY - I xY'! L(X) = ~~~=c=_::2~1tx=x~:==~ > 1 (2,10) Thus a finn producing both outputs exhibits economies of scale but not economjes of scope. 2 There are really two distinct contexts for economies of scale: the city-pair and across an airline's operations. It is confusing to read about aviation economics with regard to economies of scale. Authors are prone to categorically state that these economies exist or are lacking while ignoring or casually observing the evidence.

These different markets may be considered different product lines. Note that the definition of different product lines refers to production, not demand, characteristics. Considering the passengers carried on different routes as different product lines and using the hubbing-and-spoking technique could yield economies of scope. Bailey and Friedlaender (1982, pp. 1026-1028) delineate five different major classes of economies of scope which revolve around the theme of the sharable input. , sheep yield both wool and mutton).

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