Not sure - perhaps the airline is promoting that route or that route is already popular. Often the "C" segment takes you to the Caribbean or to Las Vegas. Price is not always correlated with distance flown.

A->B->C most likely is more expensive to the airline than A->B, but cost to the airline is just one factor in determining how much the airline charges the consumer. B could be a more desirable destination than C, and so people are willing to pay more for trips to B.

If you had bought the trip you actually wanted to take, you would have paid more. Further, it would have left a seat open on the second flight which they might have sold to somebody else, making even more money still.

Of course, the second flight probably isn't 100% sold out, and you might have gone with a competitor or not taken the trip at a higher price. But they don't necessarily see that, much like music labels don't necessarily understand that every instance of piracy is not a lost sale.