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) Suppose Sandy Chip lowers its price in response to the reduction in its costs of production.Lowering its price will cause the chip firm's total revenue to:
A) rise.
B) fall.
C) remain unchanged.
D) It is not possible to make a determination from the information given.

Question

Quizplus · Accepted Answer

Lowering the price of the computer chip will likely lead to an increase in demand for the chip, as consumers are more likely to purchase it at a lower price. The increase in demand, coupled with the decrease in production costs, will result in a higher total revenue for Sandy Chip Products, Inc.

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