Question

1. What must have been true of T-Mobile's position on its long-run average cost curve for providing wireless services (especially 5G based) if it expected to benefit from buying Sprint? 2. Draw a long-run average cost curve for T-Mobile to illustrate the firm's position on the curve before the merger. Be sure to label your graph properly (title, axes, curves, positions, etc.). Your graph should be "stand-alone" which means a reader can easily interpret your graph. 3. In your graph, illustrate the effect T-Mobile expected as a result of buying Sprint.

Answer 1

If T - mobile expected to benefit from buying Sprint, it meant that the firm would benefit by buying Sprint as it wanted to expand by buying the other firm. It also means that it expected to gain efficiencies from such economies of scale and expected the long run average cost curve to lower further going ahead. Thus the position of T-mobile on its long run average cost curve would be less output and higher average cost.

Thus before the merger, the costs would be high and quantity sold would be low. Now after the merger as it expected to benefit from the merger, its costs would reduce to C₁ and output would increase to Q₁. Thus it expected to achieve economies of scale led by the merger.