has assumed that network capacity is fixed. Taking a long-run perspective, suppose now that capacity u is variable and that the cost of capacity is C(u). The efficient level of capacity maximizes consumer benefits net of capacity costs. Capacity must be allocated efficiently across con- sumers and the level of service quality must maximize net benefits as well. Finally, total service, waiting time, and capacity are related by the production function in Networks in Telecommunications equation (38). The maximization problem is therefore subject to equation (38). The efficient level of capacity *, the efficient amount of waiting time W*, and the efficient amount of service * solve the maximization problem. The solution can be represented simply by introducing a price of service, p*. As before, efficient usage depends on the price of service di* = D(p*, W*). Total usage is the total of the rates of individual usage, 2* = = The efficient amount of capacity equates adjusted marginal cost of capacity to the price of service: The upward adjustment of marginal cost represents the need to account for conges- tion. This means that the price of service must exceed the marginal cost of capacity due to the effects of congestion. 14 The analysis of pricing with congestion sheds light on the pricing of access. As access to the network increases, greater congestion effects result. Optimal prices for access should reflect these congestion effects. Moreover, additional capacity usage should translate into capacity expansion. The result of additional usage is adjustments in the efficient levels of both service quality and network capacity.15 2. Information Loss Bandwidth is a measure of the amount of information that can be carried by a communications network. The bandwidth of the network thus measures the capacity of the network. Bandwidth measures can refer to individual links or to collections of links used to provide a particular service. Just as in the previous discussion of blocked calls, there is a related problem that arises