1. The PC World article states that Intel needs to have their new class of fabrication plants (Fabs) produce at a specified volume. Show why this is the case using the concept of cost curves to describe firm behavior such as that found on page 206 of the Baye text
2. Assume that Intel sells its microprocessor chips for a set price, shown by a horizontal line of price = marginal revenue on a firm cost curve such as that you used for question 1. Show the quantity at which Intel chooses to produce (e.g. production volume or “Q”) in a given period. Explain the firm’s reasoning to arrive at that volume.
3. Now suppose that Intel receives the McKinsey report that you read for this case. Explain the decision criteria that would have to be true for you to recommend that Intel install the energy efficiency measures. Suppose you recommend that they do decide to install the energy saving equipment before their rivals. Show what happens to their cost curves for production and make a prediction about what you think will happen to profits.
4. Now Intel hires your firm to do some economic analysis of their products. In your research, you take some data and through regression analysis find that the own price elasticity of Intel’s Atom chip is -1.1. If Intel decides to reduce the price of their Atom chip by 10%, what do you predict will happen to the quantity demanded for Atom chips? Can you make an estimate of the magnitude of the change?