element is RIC(Q,q)=c(Qq)-cu(Q,0) =C"(Q,q)-C(Q). This is the additional cost of building a network that anticipates providing the services of unbundled network elements. Suppose that there are economies of scope for firms that provide both final services and the services of unbundled network elements. This assumption need not hold in practice because, as we will observe in the next chapter, various costs can arise that make such joint production less efficient. However, if there are economies of scope, then Accordingly, the sum of the long-run incremental costs of the final service and of the unbundled network element service is less than modified total cost: (44) LRIC°(Q,q) + LRIC (Q, q) = IC"(Q,q)-C"(0,9) The problem for regulators is how to recover the shortfall between incremental costs and total costs. Clearly, the revenues generated by final consumers RQ and the revenues gener- ated by competitors must cover incremental costs to avoid cross subsidization: Regulators may choose to charge only incremental costs for competitors obtaining the services of unbundled network elements: Rq = LRIC (Q, q). The result is to shift the rest of the costs to final consumers: =co(Q,q)-LRIC(Q,q) =C°(Q,0)=C(Q). Final consumers are no worse off than before, assuming of course that long-run cost functions are used. Consider the situation in which the modified cost function differs from the long- run cost function because some inputs are fixed. Modifications to the network are required that raise costs above the long-run cost function because the network was Networks in Telecommunications designed to provide only final services Q, not unbundled network element services q. Thus, SRCU(Q, is a short-run cost function and SRCU (Q, q) > CU(Q, q).16 Properly defined, with zero services from unbundled elements, the standalone cost of final services should equal the initial cost, as in the long-run case: SRCU(Q,0) = C(Q). Notice that there may be a jump in total costs from the provision of even a very small amount of unbundled network e