Use the following to answer question(s): Chip Production
Assume that Sandy Chip Products, Inc., is the world's only producer of a special kind of computer chip.Its patents assure that it will continue to be the only producer for at least the next decade.Chip production requires clean water.The firm gets its water from a river, which is being polluted by paper mills located upstream.Sandy Chip therefore has to process the water before using it.A recently enacted pollution-control program, whereby the paper mills will be fined for polluting the river, will result in less pollution and thus lower Sandy Chip's costs.Sandy Chip expects its marginal and average cost to fall by $20 per chip.
-(Exhibit: Chip Production) With the reduction in its costs, Sandy Chip will probably:
A) lower its price by $20.
B) lower its price, but by less than $20.
C) lower its price, but by more than $20.
D) It is not possible to make a determination from the information given.

Question

Quizplus · Accepted Answer

The reduction in cost by $20 per chip will allow Sandy Chip to lower its price, but not necessarily by the full $20. This is because the company may choose to keep some of the cost savings as profit, rather than passing on the entire savings to customers. Additionally, the firm may also consider market factors such as competition and consumer demand when setting its price. Therefore, the exact amount of price reduction cannot be determined with the given information.

Use the Following to Answer Question(s): Chip Production