Correct Answer - Option 2 : 16 kbits

The total capacity is given a 32 kB. This can be written as:

32k × 8 bits = 256k bits

Since 16 IC's are used, each IC will provide:

\(\frac{256}{16}=16~kbits\)

∴ 14-bit address will give 16k memory locations, i.e. each chip can address 16k memory locations.

So, the capacity of each IC = 16k bits.