Solving Economies Of Scale And Scope

1662 Words Sep 13th, 2016 7 Pages
I. Short Answer (No more than one paragraph)
1. Define economies of scale, and provide an example of a telecommunications product or services that is currently thought to exhibit this economic characteristic. Repeat for economies of scope.
 Economies of Scale is a phenomenon which can be described as diminishing cost per unit as a result of increased output.
 Economies of scope can be described as a phenomenon where a single provider produces multiple goods or services and earns returns from different markets simultaneously out of which some may be regulated and some may be unregulated.
 An example to explain economies of scale and scope can be Cisco products. Cisco offers Cloud services, phones as well as produces network devices and offers support for all its products. This is an example of Economies of scope.
 An example of Economies of scale can be the cloud services where cisco lays down the network and data centers which comprise of major investment in infrastructure and more the number of consumers for the cloud, lesser is the cost per unit storage.
II. Medium Answer (1-2 paragraphs)
1. Suppose a rate-of-return regulated local telephone company provides IP Voice Trunking as a regulated service in competition to Level 3 and TW Telecom. Explain how this telephone company, who is not experiencing much competition in its market for local telephony, might want to allocate the costs for this service, and the economic rationale for its approach.
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