Principles of Microeconomics Chapter 11, economics homework help

Factories for producing computer chips are called “fabs.” As the semiconductors used in computer chips have become smaller and smaller, the machines necessary to make them have become more and more expensive. According to an article in the Economist magazine:

To reach the economies of scale needed to make such investments pay, chipmakers must build bigger fabs….In 1966 a new fab cost $14 million. By 1995 the price had risen to $1.5 billion. Today, says Intel, the cost of a leading-edge fab exceeds $6 billion.

Question:

Why would the rising costs of chipmaking machines lead chipmaking companies, such as Intel, to build larger factories?

**Please provide a 100 word response to this question

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