Economics 2 Marks Question

India meets its domestic demand for petrol and diesel largely through imports. Accordingly, a cut in their price in the international market leads to cut in price in the domestic market as well.
Transport firms use petrol and diesel as a major input. A cut in their price is expected to lower their cost of production. Other things remaining constant, it would lead to lower cost for the transportation of goods across different places.

Yes. In state of losses, TR < TC or AR < AC. A firm may strike equilibrium even in this situation, because equilibrium is struck when MR = MC and MC is rising. Production continues and equilibrium is struck, so long as variable costs are covered. Total losses a firm can sustain is up to 'total fixed cost'.

Not necessarily. When AR=AVC, the firm is incurring the loss of fixed costs. This loss is to be borne by the firm no matter it continues production or not. The producer, therefore, may or may not discontinue production when: AR = AVC.

No, shut-down point occurs when a firm just covers its variable cost. A firm may decide to suspend production of the commodity for the time being. No way, can it close down during the short period.

In a situation when MR > MC, the addition to revenue is greater than the addition to cost if a firm expands its production. Accordingly, expansion of production (when MR > MC) would take the firm to a higher level of profit. Implying that the firm will not strike equilibrium so long as MR > MC.

Yes. Normal profit is defined as the minimum return that the producer expects from his capital invested in the business. If this minimum return is not available, he will withdraw his capital from the existing use and shift it to the next best alternative use. Therefore, normal profit is a part of total cost.