When a firm has abnormal profits, what is its economic position?

When a firm is described as having abnormal profits, it indicates that the firm is earning excess profits beyond what is considered normal or expected. In economic terms, abnormal profits occur when total revenue exceeds total costs, including both explicit and implicit costs. This means the firm is covering all its expenses and generating additional income that serves as a reward for the risk taken by the entrepreneurs in the business.

Abnormal profits can attract new competitors into the market since the opportunity for excess earnings is appealing. This can lead to increased competition, which may ultimately push profits back down to a more normal level over time. The presence of abnormal profits signifies that the firm is economically positioned advantageously, as it is successfully utilizing its resources to generate more wealth than the average firm in the same industry.

Other options suggest conditions that do not reflect the state of a firm with abnormal profits. For example, operating at a loss denotes a situation where expenses exceed revenues, while breaking even implies that revenues and costs match, and having low market share does not directly correlate to profitability levels. Thus, the status of making excess profits clearly captures the economic position of a firm experiencing abnormal profits.