Not because they couldn't but because they willfully operated at a loss to quench potential competition. The reason there is no replacement on YT is that all the content is on YT and creators won't shift to other platforms because their whole audience is on YT as well.

YT is not a video sharing platform anymore, it's a market. And that's why it sucks so bad.

There's no way to know, Google doesn't report YouTube profit separately in their financial statements. The closest department is "Google services" which does have a 34% profit margin.

And this will be more expensive to implement than regular ads, thus margins will be even thinner...