, network engineers obtain two The Design and Costs of Networks sets of functions that specify the output of the network and the necessary inputs of the network, respectively. Second, network engineers choose the technical specifi- cations that maximize the output of the network subject to available inputs and the relationship between the technical specifications and network inputs. This results in an economic production function that specifies outputs as a function of inputs. Third, the network company chooses the mix of inputs to minimize expenditures subject to given outputs and the economic production function. This specifies the economic cost function that relates total costs to output levels. Fourth, the network company calculates revenue minus costs as a function of network outputs. This yields the profit function for the network. As the conclusion of the planning pro- cess, the network firm chooses the mix of outputs to maximize expected profits. By backward induction, the profit-maximizing output mix specifies the necessary mix of inputs from the cost-minimization process, which in turn determines the engineering specifications and design of the network. A. The Optimal Design of Networks To say that networks are interconnected might appear to be a tautology. However, networks are also interconnected in the sense that the whole is greater than the sum of its parts. Nodes and links can be critical; without a particular node or link the network may not provide the full set of services its designers intended. Even if a network could be assembled in a modular way, removal of a node or link could impair its overall ability to function. An automobile's tires are certainly modular, but remove one and the car does not travel far. The notion of access to unbundled network elements advanced by the Telecommunications Act of 1996 and by the Federal Communications Commission's concept of total element long-run incremental cost (TELRIC) makes the mistake of treating networks as collections of independent parts, which r