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.

Related Questions

70) In a monopolistically competitive industry, the long-run equilibrium output corresponds to the tangency of the firm's LRAC and its demand curve. This output is also where marginal revenue equals marginal cost because A) firms will have negative profits at any other level of output. B) the average total cost is equal to average revenue at that output. C) firms are price takers in this market structure. D) marginal cost is above price. E) firms prefer it this way.

12. Although both perfectly competitive and monopolistically competitive firms earn only normal profits in the long run, monopolistically competitive firms will not operate where price equals marginal cost--which would be the case under perfect competition.

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False

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Question 132.5 pts

13. In an oligopoly, a minimum efficient scale is large relative to the market.

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False

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Question 142.5 pts

14. Ceteris paribus: if Ford raises the price of its automobiles, the demand curve for GM automobiles shifts to the right.

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False

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Question 152.5 pts

15. It is harder to explain the behavior of firms in oligopoly than in other market structures because in oligopoly firms base their decisions on what their rivals do or might be expected to do in reaction to their decisions.

True

False