Many consumers in the United States, including most students, use primarily (and

Question

Many consumers in the United States, including most students, use primarily (and sometimes exclusively) cell phones for communication purposes and have almost completely stopped using traditional landline phones. In many foreign countries, the expansion of the telephone network is achieved through expansion of the cellular network and not through the expansion of the landline network.

(a) Is there any reason to believe that the cost of a cellular network is less than the cost of a landline network? Please explain.

(b) Is this difference in cost a result of a difference in fixed cost or a difference in variable costs (operating costs) (between cellular networks and landline networks)? Please explain.

Explanation / Answer

Eliminate your Landline Telephone Bill
A lot of us have cut the landline, relying solely on a cell phone. That makes your cellphone a good cost cutting measure, saving without those landline charges. Sometimes, however, you require a proper phone, whether it be for work conference calls or for a home security system. Don't buy into the claims of IP phone services such as Vonage;

economics, fixed costs and variable costs are the two main kinds of costs associated with production of a good or service.

Fixed costs are costs that do not vary with the level of production. They are the same if a firm produces one unit of their product or one million units. Fixed costs typically include such things as the rent on the building in which the firm produces its product.

Variable costs are the costs that do vary with the level of production. For example, a restaurant's fixed costs will include the cost of the food they prepare and serve to customers as well as the cost of the labor of wait staff and cooks.

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