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case study world com justice department seeks to enjoin merger between worldcom and sprint corporation Discussion...

case study world com justice department seeks to enjoin merger between worldcom and sprint corporation

Discussion Questions Q3. a) Are marginal costs high or low in this industry? b) What does this indicate about the market power of the firms?

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Answer #1

a) Marginal Cost is low in this industry as it wouldn't incur much cost for a subscriber to give connection but the fixed cost is very high and that's the reason why majority of the proportion of price is to recover fixed cost only.

b) Though the marginal cost is low but the fixed cost is high, this means there is a huge barrier to entry in this market in the form of initial capital investment which is the fixed cost and this tells us that there are not many firms in the market and presence of market power is there all in all.

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