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Technological Change and Government Subsidies

Case b)
Technological Change and Government Subsidies
LEAD STORY-DATELINE: Business Week April 16, 2001
We tend to think of the microprocessor king Intel Corporation as an independent private company. Sometimes though, we wonder if anything is purely private or purely public, for that matter. After all, private airline companies land their planes at public airports. Private trucking companies use super-highways funded by the federal government. Why would it be different for Intel? In many ways, it is not-especially when it comes to technological change.
Since the first Sumerian clay tablets 5,500 years ago, the progress of humans is directly related to the ability to store, process, and retrieve information. In recent decades, that progress has been amazing. The power of chips has been doubling every 18 months, creating desktop super-computers, storehouses of digital data, and smarter cars and home appliances. Behind this progress in silicon technology are the steady advances in microlithography-the process used to "print" ever-smaller circuits on silicon wafers. Further expansion in the Information Age depends upon on a major leap in lithography because smaller is better.
Intel corporation leads a consortium of private companies, national laboratories, and academics in the development of extreme ultraviolet (EUV) radiation to reduce circuit lines to a minuscule 35 nanometers or even less. The microlithography machine is like a complex stenciling tool. It projects a circuit pattern through reducing lenses onto a high-sensitive coating on a silicon wafer. Wherever the light strikes, the coating hardens. Then the coating's soft regions can be etched away, leaving a maze of lines that further processing turns into millions of transistors and connections. Federally funded collaborations with the national labs helped solve many technical problems, and AT&T got $2 million from the Commerce Department, which it used to boost U.S. optics technology.
Then a crisis came. After gaining control of Congress in 1994, Republican lawmakers axed funding for joint research among national labs and private companies. Intel put together a consortium involving Sandia, Livermore, and Lawrence Berkeley national labs, along with chipmakers AMD, Infineon Technologies, Micron Technologies, Motorola, and equipment suppliers. Intel coughed up the lion's share of the $250 million budget, but won a guarantee that it would get the new lithography machines first, before other consortium members. Ironically, such feats may now be made even more difficult as the Bush Administration plans to withhold funding for one of the programs that jump-stared this project.
1. In economics the subject of this article is the technology of production. What is a production function and what is happening to it in this new chip technology?

2. Does this idea of producing more with less conflict with the law of diminishing returns?

3. The prototype EUV machine, currently at Sandia National Laboratories is the result of 13 years of work and more than $250 million in research-and-development funding. Each new lithography machine will cost $40 million. These costs exceed what small corporations could fund. Does this kind of R&D expense have implications for corporate size and industrial concentration?

4. Are there long-term advantages to government funding of such expensive R&D through the national laboratories?

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Case b)
Technological Change and Government Subsidies
LEAD STORY-DATELINE: Business Week April 16, 2001
We tend to think of the microprocessor king Intel Corporation as an independent private company. Sometimes though, we wonder if anything is purely private or purely public, for that matter. After all, private airline companies land their planes at public airports. Private trucking companies use super-highways funded by the federal government. Why would it be different for Intel? In many ways, it is not-especially when it comes to technological change.
Since the first Sumerian clay tablets 5,500 years ago, the progress of humans is directly related to the ability to store, process, and retrieve information. In recent decades, that progress has been amazing. The power of chips has been doubling every 18 months, creating desktop super-computers, storehouses of digital data, and smarter cars and home appliances. Behind this progress in silicon technology are the steady advances in microlithography-the process used to "print" ever-smaller circuits on silicon wafers. Further expansion in the Information Age depends upon on a major leap in lithography because smaller is better.
Intel ...

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Economic case studies

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