BUS 703 Managerial Economics

Individual Assignment 2

A. Because of increasing competition and customer control, reprogrammable SIM cards

in devices like iPhones could potentially diminish Verizon and AT&T's price-cost
margins. Customers may quickly move between networks thanks to these SIM cards,
which promotes competition. Hence, in order to keep clients, telecom companies
could need to lower costs or enhance services, which would have an effect on their
profits.

The markup formula, which is derived from the formula (P-MC)/P=1/ηp, indicates that
the amount of markup that may be added to a product diminishes as its own price
elasticity rises. As the elasticity grows on the denominator side, the markup value on
the left-hand side decreases. This suggests that operators' price-cost margin will
decrease since they will have less margin to add to their goods.

B. To make switching from AT&T's network to a competitor company like T-Mobile more
difficult, the company requires the installation of a new card. Customers may find this
requirement more inconvenient and decide not to switch to a competitor as a result.
AT&T wants to keep its customers by making the process more difficult because some
people would rather not deal with the inconvenience of having to swap SIM cards
when switching service providers.