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) If in response to its reduction in cost, Sandy Chip changes its price in a profit-maximizing way, then we can predict that its total economic profit will:
A) rise.
B) fall.
C) remain unchanged.
D) It is not possible to make a determination from the information given.

Question

Quizplus · Accepted Answer

With the reduction in the cost of production, Sandy Chip can lower its price or maintain the current price to increase demand and, therefore, increase its economic profit. As the only producer of the special kind of computer chip, Sandy Chip has a monopoly power to set its price to maximize profits. Thus, the reduction in cost will lead to an increase in economic profit.

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