Question 3

Points: 21

(a) Explain the difference between sunk cost and fixed cost. (3 marks)

(b) Which of the following is consider sunk cost, fixed cost and variable cost. Justify your answer.

(i) A drug company spend RM10 million on developing a new drug but

achieve no progress. (2 marks)

(ii) A resort owner bought a few boats for his Island resort. (2 marks)

(iii) labors used in a farmland. (2 marks)

(c) Suppose a pure monopolist is faced with the demand schedule shown below and assume further that the monopoly has a constant marginal cost of $39 at every level of output.

Price Quantity Demanded Total Revenue Marginal Revenue

$115 0

$100 1

$83 2

$71 3

$63 4

$55 5

$48 6

$42 7

$37 8

$33 9

$29 10

(i) Calculate the missing totalrevenue and marginalrevenue amounts.

(6 marks)

(ii) Determine the profitmaximizing price and profitmaximizing output for

this monopolist. (4 marks)

(iii) What is the monopolist's profit?

(2 marks)