3. You are considering opening a solar-panel plant in San Mateo. Your product uses a new thin-film production process that makes more efficient use of silicon, the primary variable cost of producing solar cells. Your company has already made a $10M investment in research and development. Since your research was about a technology specific to your firm, other firms will not buy the research output.

To start production you will need to invest in a plant that costs $30M per year, and you have not made this investment yet. Your firm has studied the possibility of using such a plant to produce batteries for electric cars, and you believe that such a venture would earn $5M in profit over the next year. Finally, each solar cell you produce requires labor and silicon as input. The labor costs are $1 per cell. You have a long-term contract for the silicon, so you pay only $3 for enough Silicon to make a solar cell, but the same amount of silicon trades for $4 on the open market.

a. What sunk costs does your firm face? Put a dollar value on the accounting and economic costs of these items.

b. What fixed costs does your firm face? Put a dollar value on the accounting and economic costs of these items.

c. What variable costs does your firm face? Put a dollar value on the accounting and economic costs of these items.