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

Question

Quizplus · Accepted Answer

Since the firm is in a perfectly competitive industry, it takes the market price as given. The firm is maximizing profit where MR=MC, which is $620 per tonne in this case. 
The average total cost (ATC) is greater than the price (MR) at this output level, indicating that the firm is incurring a loss. 
Therefore, the firm is maximizing (since it is producing where MR=MC) but is earning an economic loss.
The economic loss per month can be calculated as:
Economic loss = (Price - ATC) x Q
= ($620 - $627) x 1500
= -$10 500 per month. 
Thus, the correct answer is B.