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Technology Stocks : Intel Corporation (INTC)
INTC 35.94-5.1%Nov 13 3:59 PM EST
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To: ron delany who wrote (63881)9/3/1998 7:56:00 PM
From: Timothy Liu  Read Replies (1) of 186894
 
Ron,

There is this thing called price elasticity which determines how much you can sale vs. the price. Every company try to maximize profit base on this curve. Because the cost goes down, this magic point on the curve change as well. For example,

Intel has a chip that cost 20$. It can sell 100 unit at 50$. For a profit of 3000$ total. If Intel decide to lower the price to 40$. It needs to sell 3000/(40-20)=150 units.

Now say Intel improve process and the cost drops down to 15$. At 50$, intel is now making 3500$. NOW, if Intel decide to lower the price to 40$, it only needs to sell 3500/(40-15)=140 units.

So when the cost is lowered, what may not be good business practice a while ago maybe valid now.

Tim
My 0.02$ not Intel's
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