Chip performance per dollar
doubles every 18 months.
The part of the computer that
executes the instructions of a
Moore’s Law and More: Fast,
Cheap Computing, and What
It Means for the Manager
After studying this section you should be able to:
1. Deﬁne Moore’s Law, WMD understand the approximate rate of advancement for other techno-
logies, including magnetic storage (disk drives) and telecommunications (ﬁber optic
2. Understand how the price elasticity associated with faster / cheaper technologies opens new
markets, creates new opportunities for ﬁrms and society, and can catalyze industry disruption.
3. Recognize and deﬁne various terms for measuring data capacity.
4. Consider the managerial implication of faster / cheaper computing on areas such as strategic
planning, inventory, and accounting.
Faster and cheaper—those two words have driven the computer industry for decades, and the rest of
the economy has been along for the ride. Today it’s tough to imagine a single industry not impacted by
more powerful, less expensive computing. Faster and cheaper puts mobile phones in the hands of peas-
ant farmers, puts a free video game in your Happy Meal, and drives the drug discovery that may very
well extend your life.
This phenomenon of ‘faster, cheaper’ computing is often referred to as Moore’s Law, after Intel co-
founder, Gordon Moore. Moore didn’t show up one day, stance wide, hands on hips, and declare
“behold my law”, but he did write a four-page paper for
in which he described
how the process of chip making enabled faster chips to be manufactured at cheaper prices
Moore’s friend, legendary chip entrepreneur and CalTech professor, Carver Mead, later coined the
” moniker. That sounded snappy, plus as one of the founders of Intel, Moore had
enough geek cred for the name to stick. Moore’s original paper oﬀered language only a chip designer
would love, so we’ll rely on the more popular deﬁnition:
chip performance per dollar doubles every 18
(Moore’s original paper assumed two years, but many sources today refer to the 18-month
ﬁgure, so we’ll stick with that).
Moore’s Law applies to chips—broadly speaking, to
chips, or the electronics
stuﬀ that’s made out of silicon
is the brain of a computing device. It’s the part
of the computer that executes the instructions of a computer program; allowing computers say, to run
a web browser, word processor, video game, or virus. For processors, Moore’s Law means that next
generation chips should be twice as fast in 18 months, but cost the same as today’s models (or from an-
other perspective, in a year and a half, chips that are same speed as today’s models should be available
for half the price).