Taiwan is a major world supplier of semiconductor chips.

Taiwan is a major world supplier of semiconductor chips. A recent earthquake severely damaged the production facilities of Taiwanese chip-producing companies, sharply reducing the amount of chips they could produce.

a. Assume that the total revenue of a typical non-Taiwanese chip manufacturer rises due to these events. In terms of an elasticity, what must be true for this to happen? Illustrate the change in total revenue with a diagram, indicating the price effect and the quantity effect of the Taiwan earthquake on this company’s total revenue.

b. Now assume that the total revenue of a typical non-Taiwanese chip manufacturer falls due to these events. In terms of an elasticity, what must be true for this to happen? Illustrate the change in total revenue with a diagram, indicating the price effect and the quantity effect of the Taiwan earthquake on this company’s total revenue

ANSWERS AND EXPLANATIONSSupply is perfectly inelastic: the quantity of cabins on the Queen Mary 2 is fixed. As demand increases (arightward shift in the demand curve), the price of a cabin on the…

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