Suppose ABC Corp

question 111

Multiple Choice

Suppose ABC Corp.is a firm producing newsprint in a perfectly competitive industry.We have the following information about the firm's production: - output (Q) = 1500 tonnes per month
- average total cost (ATC) = $627 per tonne
- average variable cost (AVC) = $614 per tonne
- marginal revenue (MR) = $620 per tonne
- marginal cost (MC) = $620 per tonne
At the current level of output,this firm is ________ profit and is earning economic profit of ________ per month.

• A)maximizing; $10 500
• B)maximizing; -$10 500
• C)not maximizing; -$10 500
• D)not maximizing; -$9000
• E)maximizing; $9000

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Definitions:

Annual Coupon

The yearly interest payment made to bondholders, expressed as a percentage of the bond's face value.

Bond-Yield-Plus-Risk-Premium

A method of estimating the cost of equity by adding a risk premium to the observed yield of a company’s long-term debt.

WACC

An assessment of a firm's cost of capital, where each category of capital is proportionally weighted to calculate the average cost.

Marginal Costs

Marginal costs refer to the change in total cost that arises when the quantity produced is incremented by one unit.