The correct answer is: A. AC = AR
When AC = AR, the firm is earning just normal profits. This is because the firm is covering all of its costs, including both explicit and implicit costs. Explicit costs are the costs that the firm incurs directly, such as the cost of labor and materials. Implicit costs are the costs that the firm incurs indirectly, such as the opportunity cost of the firm’s resources.
When AC = AR, the firm is not making any economic profit. Economic profit is the difference between total revenue and total costs, including both explicit and implicit costs. If the firm is making economic profit, it is earning more than it needs to cover its costs. This means that the firm could be earning more by using its resources in another way.
If the firm is making economic loss, it is not covering all of its costs. This means that the firm is not earning enough to cover its costs, including both explicit and implicit costs. If the firm continues to make economic loss, it will eventually go out of business.
In conclusion, when AC = AR, the firm is earning just normal profits. This is because the firm is covering all of its costs, including both explicit and implicit costs.