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Costs - Assessment
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1. According to a study of cable television commissioned by the city of Monroe, Georgia, "A cable operator must invest in equipment, satellite dishes, towers, antenna, and cable distribution facilities before providing a service to a single customer...Because this large initial investment is invariant with respect to the number of customers served, the average unit (per customer) cost will decline in inverse proportion to the total number of customers served. Under these conditions..., construction of duplicate fixed facilities will be wasteful and economically inefficient." (a) Does it seem reasonable that there are substantial economies of scale in cable TV? That is, does it seem likely that the average cost per subscriber will tend to decline as the number of subscribers increase? (b) If there are substantial economies of scale, is it likely that only one cable operator will exist in most markets (a situation economists refer to as a "natural monopoly.") 2. Answer the questions on the following interactive tutorial: |
