Scenario 5-8 Consider the Markets for Mobile and Landline Telephone Service. Suppose

question 294

Short Answer

Scenario 5-8
Consider the markets for mobile and landline telephone service. Suppose that when the average income of residents of Plainville is $55,000 per year, the quantity demanded of landline telephone service is 12,500 and the quantity demanded of mobile service is 28,000. Suppose that when the price of mobile service rises from $100 to $120 per month, the quantity demanded of landline service decreases to 11,000. Suppose also that when the average income increases to $60,000, the quantity demanded of mobile service increases to 33,000.
-Refer to Scenario 5-8. Using the midpoint method, what is the cross price elasticity of demand for landline and mobile service?

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Definitions:

Minimum Efficient Scale

Minimum efficient scale represents the smallest amount of production a company can achieve while still taking full advantage of economies of scale in terms of costs per unit.

Industry

A group of companies that produce similar products or services and compete in the same market.

Diseconomies of Scale

Increases in cost per unit when output increases, resulting from factors such as management challenges, inefficiencies, and communication problems as firms grow larger.

Large-Scale Business

An enterprise or organization that operates on a significant scale, typically involving extensive operations, large numbers of employees, or substantial revenue.