Figure 10-4 shows the industry's supply and demand curves in panel (1) and the cost curves of a firm in the industry in panel (2).

image
At S1, the firm is

a. preparing to shut down.
b. incurring losses.
c. earning zero economic profits.
d. earning economic profit greater than zero.


Answer is d. earning economic profit greater than zero. (Price is greater than the AC and AVC. It means that firm is able to cover all its costs and sell the product at higher price.)

Economics

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