The diagram shows the average fixed cost (AFC), average variable cost (AVC) and average total cost (ATC) curves faced by three firms X, Y and Z. Dₓ, Dᵧ and D_Z are the three respective demand curves. All three firms seek to make a profit. [Diagram showing price, cost and quantity axes; ATC, AVC, AFC curves; demand curves Dₓ, Dᵧ, D_Z]

1. Which statement is not correct? A Firm X will choose not to produce at all. B Firm Y is likely to operate in the long run but not in the short run. C Firm Y is likely to operate in the short run but not in the long run. D Firm Z will operate in both the short run and the long run.[1]

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