Economics Study Material

ECONOMICS
STUDENT ID:
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Question 1
(a)True
(b)False
(c)False
(d)True
(e)True
(f) False
(g)Option B
Question 2
a) The sunk cost refers to the cost which cannot be recovered. For each of the production
year beginning, the sunk cost would comprise of the $ 2 million payment with regards to
electricity and water. Irrespective of the production trends, this cost cannot be recovered
and hence is sunk cost.
b) If one sis in middle of the year, then besides the water and electricity cost, additional cost
related to maintenance and labour may be considered as sunk cost. This is especially the
case when maintenance is done in the first half of the year and this cost cannot be
recovered. Similarly, any prepayment made to labour besides contractual commitments to
labour would result in additional sunk cost.
c) The graph for marginal cost is shown below.
d) The demand equation for Stern Beer is indicated below.

Q = 500 – 10P
Total Revenue (TR) = P*Q = P*(500 – 10P) = 500P – 10P2
Marginal Revenue (MR) = d(TR)/dQ = 500 – 20P
e) The requisite graph for MR curve, demand curve and marginal cost curve is indicated as
follows.
f) For maximisation of profit, MR=MC.
Hence, 500 – 20P = 2
Solving the above, we get P = $ 24.9