Various industries suffer from an acute shortage of semiconductors (an essential component in electronic gadgets). Since the start of 2022, Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest contract chipmaker, increased chip prices by as much as 20%. United Microelectronics (UMC) has also issued a price increase of its own, raising quotes for 28nm and 22nm processes. A third semiconductor manufacturer based in China-Semiconductor Manufacturing International (SMIC) has joined TSMC and UMC in raising its prices for 28nm and 40nm processes. i. Consider the market for semiconductors is perfectly competitive. What will be the impact of an increase in prices for semiconductors on manufacturers' profits in the short and long-run? Explain your answer with reference to the law of supply." ii. Now consider that the semiconductors market is an oligopoly, where TSMC, UMC and SMIC control 90 per cent of the market share. Do you think the unanimous action of the three giant corporations is an act of collusion? Explain why the firms may prefer to collude rather than compete in an oligopolistic setup.
Various industries suffer from an acute shortage of semiconductors (an essential component in electronic gadgets). Since the start of 2022, Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest contract chipmaker, increased chip prices by as much as 20%. United Microelectronics (UMC) has also issued a price increase of its own, raising quotes for 28nm and 22nm processes. A third semiconductor manufacturer based in China-Semiconductor Manufacturing International (SMIC) has joined TSMC and UMC in raising its prices for 28nm and 40nm processes. i. Consider the market for semiconductors is perfectly competitive. What will be the impact of an increase in prices for semiconductors on manufacturers' profits in the short and long-run? Explain your answer with reference to the law of supply." ii. Now consider that the semiconductors market is an oligopoly, where TSMC, UMC and SMIC control 90 per cent of the market share. Do you think the unanimous action of the three giant corporations is an act of collusion? Explain why the firms may prefer to collude rather than compete in an oligopolistic setup.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Various industries suffer from an acute shortage of semiconductors (an essential component in
electronic gadgets). Since the start of 2022, Taiwan Semiconductor Manufacturing Co. (TSMC),
the world's largest contract chipmaker, increased chip prices by as much as 20%. United
Microelectronics (UMC) has also issued a price increase of its own, raising quotes for 28nm and
22nm processes. A third semiconductor manufacturer based in China-Semiconductor
Manufacturing International (SMIC) has joined TSMC and UMC in raising its prices for 28nm
and 40nm processes.
i. Consider the market for semiconductors is perfectly competitive. What will be the impact of an
increase in prices for semiconductors on manufacturers' profits in the short and long-run? Explain
your answer with reference to the law of supply.
ii. Now consider that the semiconductors market is an oligopoly, where TSMC, UMC and SMIC
control 90 per cent of the market share. Do you think the unanimous action of the three giant
corporations is an act of collusion? Explain why the firms may prefer to collude rather than
compete in an oligopolistic setup.
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