lement services q if there are fixed costs of modifying the network. Thus, there may be a discontinuity in SRCU(Q, from supplying some unbundled network element services. The incremental cost of supplying UNE services should contain all of those costs and should be thought of as the short-run incremental cost of network services, SRIC (q), where for all q > 0, SRIC"(Q,q)>IC"(Q,q) for any inputs that are fixed and depart from the long-run efficient level.¹7 Now, suppose that the network's competitors are charged based on long-run incremental cost, but some inputs are nevertheless fixed. Then, if Rq = LRIC (q), customers of final services are made worse off: RQ = =SRC(Q,q)-LRIC(Q,q) - = SRC ( (Q, q) - - RIC1(Q,q)-LRICa(Q,) = SRCU SRIC1(Q,q)-LRICa(Q,) = C(Q) + SRIC9(Q,q) - LRIC (Q,q) C(Q). This situation can be remedied by charging for all incremental costs of UNE services, not just long-run costs as if the network were efficiently configured. Thus, with fixed inputs, short-run incremental costs reflect the actual cost increases resulting from the provision of UNE services. Consider now the FCC's notion of total element long-run incremental cost. In our framework, there is a vector of services corresponding to each specific unbun- dled network element, q = (q1,..., qL), and a vector of services corresponding to initial final services generated by the network as a whole, Q = (Q1,..., QJ). Then, if there are economies of scope, total cost exceeds the sum of all incremental costs: According to TELRIC, it should be possible to divide total costs into categories that can be fully assigned to the network elements. Such costs with L elements would 16 This follows from standard arguments based on the Le Chatelier principle. On the cost functions with investment, see Becker and Spulber (1984). 17 Because SRCU (Q,9) > C'(Q, q) for fixed inputs that depart from long-run optimal levels, (Qq)-SRC(Q,0) >C(Qq)-c(0) - given that = =C(Q) Therefore, for output Q, SRIC (Q,q) q). The Design and Costs of Networks correspond to revenues 