expanded capacity over traditional alternatives, but greater capacity should not be understood as infinite capacity. Even if there is excess capacity relative to demand at any particular time, capacity remains bounded. Capacity is costly, SO it must be considered scarce. Demand for capacity also increases with the development of higher-bandwidth applications. Accordingly, the interaction between the supply of and demand for network capacity is similar to that in most other industries. The PPF for networks specifies alternative uses for network facilities. To pick a simple example, consider the use of a traditional telecommunications network as a means of transmitting data and voice traffic. Suppose that the technical char- acteristics of the data and voice services are specified, with some quality level for each and other engineering specifications; see Figure 2.10. At output (Q**, 0) there is a network optimized for voice, perhaps a circuit-switched network. At output (0, Q**) there is a network optimized for data, perhaps a packet-switched net- work. At (Qt, Q2) there is a hybrid network optimized for a mixture of voice and data, perhaps with voice over Internet protocol or a mixture of circuit-switched and packet-switched transmission methods. The PPF shows what is feasible given available technologies and underlying inputs. The multiple-output production function again demonstrates the intercon- nected nature of network inputs. Changes in the input mix results in a shift in the production possibilities frontier; see Figure 2.11. Changes in the input mix thus fundamentally alter the tradeoffs between services that the network can provide. The set of services on the PPF is altered if network elements are detached through unbundled access. Networks in Telecommunications Q2' * Voice Q1 * Q1** ** Figure 2.10. The production possibility frontier of a multiproduct network. C. Cost Functions of Networks Costs represent a schedule of dollar amounts associated with outputs. Cost schedules do not depend directly on inpu