A recent study indicates that the long-run average cost curve for cellular telecom companies is basically flat. What do you expect to happen to industry output and costs per subscriber if the number of cellular providers were reduced (assuming the costing finding is true)? Why?

A recent study indicates that the long-run average cost curve for cellular telecom companies is basically flat. What do you expect to happen to industry output and costs per subscriber if the number of cellular providers were reduced (assuming the costing finding is true)? Why?

 

 

Answer:

The cost was flat because as the no of subscribers increases their profit increases because they don’t require much more infrastructure if no of subscribers are present in same network areas. these companies have starting fixed cost which is too high becuase of tower development and censor installtions and after that they don’t need to invest much in current infrastructure other than R&D and marketing.

So if cellular providers will be reduced then these (present, survived) companies cost does not change because customers switch to these companies without incurring any extra cost but due to lack of competition prices of call rates may go up and some companies (which will aquire more customers) will benefit from it.

Asked on February 13, 2018 in economics.
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