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The Case: One of the classical examples of competitive market structure in Pakistan is telecommunication sector. The major cellular companies in this sector are Mobilink, Ufone, Telenor, Warid and Zong. Among these companies, Mobilink, a subsidiary of the Orascom Telecom Holding, is Pakistan’s leading cellular and Blackberry service provider. It has more than 30 million subscribers. The company has almost 15,000 employees and is paying 4 million rupees to these employees. Suppose the company has taken a loan of 100 million rupees from Summit Bank and is paying 3.5 million rupees as interest payments. The total rent of various franchises is 50 million rupees. According to "Customer's Perception Survey" conducted by Pakistan Telecom Authority (PTA) in 2011, the company had been ranked as "excellent" among all cellular service providers in the country. This survey showed an increased demand of Jazz SIMs in the country. The demand and supply function of Jazz SIM is as follows: Qs = - 80+ 8P Qd = 70 - 2P
a. From the above information, calculate the total explicit cost of the company.
b. Find the equilibrium price level of Jazz SIM and the quantity that must be supplied
in the market by keeping in view the demand of Jazz SIM.
c. Draw a graph to show the equilibrium price and equilibrium quantity of Jazz SIM.
d. Graphically illustrate the effect on equilibrium price if any of the rivals (Ufone,
Telenor, Warid) of Mobilink decreases the price of its SIM?
(Marks = 5 + 10 + 5 + 5)
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