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What is one function of the second paragraph?
The criticism presented in the third paragraph (Americans' expectations of service don't fit with American discount airlines' business model) is based on data given in the same paragraph, and not in the second paragraph.
The second paragraph shows how American discount airlines benefit from the current state of affairs; it makes no prediction as to whether or not this success will be maintained in the future. The author expresses his or her concerns about the future in the third paragraph.
The second paragraph explains how the current financial situation created a situation in which American discount airlines, described in the first paragraph, could thrive.
The words 'from its inception' imply the second paragraph includes the entire history of American discount airlines; however, the second paragraph discusses the present state of affairs only, without informing us of when and how such airlines first appeared.
American consumer expectations are discussed in the third, not second, paragraph. Finding out that the expectations is discussed in the third paragraph will indeed require going back to the passage and reading a bit more of the third paragraph. However, this does not mean that you actually have to do so - all you need to care about is whether E is the answer to the question above. The question asks about a function of the second paragraph; all you need to eliminate E is to ascertain that expectations are NOT discussed in the second paragraph, and for that the initial reading is sufficient - from the first sentence, it is clear that the paragraph deals with the economic circumstances, not consumer expectations. Thus, You need not worry about which paragraph DOES fit E - you just know that it's not the answer to the question. Work by elimination, and constantly ask yourself, Have I found my answer? Do I really need to read more?