QUESTION 1

1.1 With aid of evidence in the given article, comprehensively discuss the market structure in the South African mobile telecommunications industry.

1.2 What type of barriers to entry exists in this industry and how did Virgin Mobile manage to enter into this industry? Justify why it is beneficial for existing firms to attempt to create such barriers.

QUESTION 2

2.1 What typical measures have been adopted by the South African government to combat potential abuse of market power by large organisations like MTN and Vodacom?

2.2 Discuss the kinked demand curve in the context of the mobile telecommunications industry in South Africa.

QUESTION 3

The main heading in the Business Times section of the Sunday Times of 2 February 2003 read: 'Telkom tightens its grip on monopoly.' In the article it was stated that: 'The delay in licensing a second national operator is a blow to consumers who have been awaiting the benefits of a competitive market.'

3.1 Do you think Telkom had a monopoly in 2003 and if so, in which market(s) did it act as a monopolist?

Motivate your answer with the theoretical characteristics of this market structure.

3.2 What are the benefits of this type of market which is being referred to in the Virgin Hits out at MTN, Vodacom article. (10)

QUESTION 4

Economists say that firms maximises profit by producing a level of output where marginal cost (MC) is equal to marginal revenue (MR). The CEO of Virgin Mobile responds, 'That's a lot of nonsense. I do not even know what marginal cost and marginal revenue mean. How can I be doing something I don't even know about?'

4.1 Explain to him fully the profit-maximising/loss minimising rule within the context of a perfectly competitive market structure.

4.2 Explain how the profit-maximising/loss minimising rule may be applied under the three (3) scenarios viz. economic profit, normal profit and economic loss.