Suppose ABC Corp. is 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
Suppose ABC Corp. chooses to temporarily halt production in its current period. Is this a profit-maximizing choice for this firm?
◦ No. The firm is covering its ATC and should continue to produce so it can cover some of its fixed costs, which it will incur whether it produces or not.
◦ Yes. The firm is not covering its ATC and is incurring losses in each period.
◦ No. The firm is covering its AVC and should continue to produce so it can cover some of its fixed costs, which it will incur whether it produces or not.
◦ Yes. The firm is not covering its AVC and is incurring losses in each period.
◦ There is not enough information to determine this.
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