ECO204Y5 Lecture Notes - Economic Equilibrium, Economic Surplus, Isocost

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8 Dec 2013
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Even when costs are minimized, it is not necessary that their use of l and k will be at the max of where mpl and mpk: false. Each individual firm faces a horizontal demand curve. This is because perfectly competitive firms are price takers, where price is a constant. If firms try to sell their output at any price other than the market price, they will not attract any buyers. Only the market demand curve is downward sloping: false. Firms will shut down when their avc is above the market price since this implies they are incurring negative profits for each unit of output produced: false. Long-run average cost curves are u-shaped to illustrate the different returns of scale firms experience. When firms are small, they initially experience increasing returns to scale, which lead to economies of scale (costs decrease as q increase) which cause the downward sloping portions of the long-run average cost curve.

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