Questions tagged [marginal]

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For the cost function question (equation in image), I have found TVC as AVC*P. However the MC curve derived is giving imaginary number solution

For the cost function question (equation in image), I have found TVC as AVC*P. However MC curve is showing an imaginary number as solution.
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3 answers
65 views

Does marginal revenue actually refer to marginal revenue per time unit?

When I was learning about why marginal revenue is lower than demand, I referred to this derivation: $$\frac{d(TR)}{dQ} = \frac{d(PQ)}{dQ} = \frac{PdQ + QdP}{dQ} = P + Q\frac{dP}{dQ}$$ Wikipedia ...
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Mathematical explanation of transformations of Marginal Revenue

MR = d(Total revenue)/dQuantity = d (Price * Quantity)/dQuanitity This is the same as this : MR = P(Q) + dP/dQ I did it with an example and it amazed me how both are equal but I still dont get how. ...
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1 answer
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How does marginal utility and marginal product differ?

The marginal utility is, in plain English, the additional benefit (utility) that an individual gets by consuming an additional unit of a good or service. According to the Law of Diminishing Marginal ...
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Perfect substitutes mathematical definitions not equivalent

Statement: Consider goods $X$ and $Y$ (and we denote the quantities of by the same notation) such that they are perfect substitutes with the substitution ratio $1:n$. Assume the basic axioms ...
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What's the difference between fixed and variable O&M costs in power generation

Not sure what the difference is btwn Fixed and variable O&M costs. As you can see in this screenshot, both contain maintenance cost. While fixed o&m contains regular and irregular maintenance ...
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1 answer
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Utility Function Challenge

A utility function is given for two goods Good 1 and Good 2 $$U=f({G_1},{G_2})=45{{G_1}^{0.7}}{{G_2}^{0.3}}$$ Did I get this right? the marginal utility functions with respect to G1 and G2 will be ...
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1 answer
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Relationship between capital and decreasing marginal prodcutivity

In Capital by Thomas Piketty ( chapter The capital - labor spit in the twenty first century - page 271) we have below quote The evolution of the rate of return on capita, r, significantly reduces the ...
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2 answers
174 views

Is addiction a case of increasing marginal utility?

I got to know that alcohol addiction is a case of increasing marginal utility. My professor refutes me bluntly stating that once a person starts consuming he no longer remains to be a 'rational ...
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2 answers
58 views

Is it possible to absorb the cost of advertising into the production cost for information goods in situations where attention is scarce?

This is a question about the economics of information goods on the Web. Let's say that there is an information good that is sold on the Web, that can be produced at some cost of production D, using ...
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1 answer
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I don't know why these two method yield different solutions for marginal product of labour

Given a homogeneous of degree one function $$Y=F(K,N) \\ y=\frac{Y}{N} =F(\frac{K}{N},1):=f(k)$$ I am looking for the partial derivative for $N$ Method 1 $$F_N=\frac{\partial F(K,N)}{\partial N}=\frac{...
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2 answers
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Fundamental question on marginal utility

I was just thinking back to some introductory economics courses, but now I'm extremely confused on a fundamental concept. How is marginal utility interpreted as the additional "happiness" ...
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0 answers
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Unsolveable Demand/Utility Problem?

A consume has a preference relation on $\mathbb{R}^4_+$ with a utility function defined as $$ U(x_1,x_2,x_3)=(\ln(3x_1+2x_2+x_3))^3$$ Find the demand at prices $p=(1,1,1)$ and wage $4$. Attempt I ...
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3 votes
3 answers
741 views

Demand curve is same as Marginal Benefit curve?

Demand curve is same as Marginal Benefit curve [Source: Microeconomics by Pindyck & Rubinfeld, Chapter 10, Section 5 - Monopsony]. I have only seen intuitive explanations for this statement. Can ...
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1 answer
56 views

Equivalence of producer surplus areas

I really can't understand how the sum of the rectangles leads to the sum of the triangle. My book's(Chapter 12, page 430) explanation is: Equivalence of these areas can be shown by recognizing that ...
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1 answer
513 views

Determine marginal revenue given demand curve and marginal cost

a)Determine marginal revenue curve if firm can only charge 1 price,List demand curve,marginal revenue curve,,marginal cost,average total cost equations. b)What is optimal price and quantity? c)If firm ...
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Relation between marginal cost and output elasticities

Does anyone know of any results that show the link between marginal cost and the output elasticities analytically? I am looking at production and cost theory books but can't find any results that ...
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2 answers
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Competitive wages under imperfect information

Do competitive wages always have to be defined by marginal productivity? Can we have competitive wages which are not based on productivity, when the information is not perfect? To put it in context, ...
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1 answer
220 views

Why marginal benefit is decreasing as more and more pizzas are being produced?

I'm taking one of my initial courses in Economics on my own and currently reading Economics by McConnel, Brue and Flynn. On the page 13, the book is trying to explain about Optimal Allocation. They ...
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About marginal cost setting on Jordi Gali's work

I'm studying Gali's work with the paper(or book?) which is "Jordi Gali, Monetary policy inflation and the business cycle_An introduction to the new keynesian framework(2015)" and wonder one ...
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1 answer
364 views

Marginal cost given (Cobb-Douglas) production

My function is $y=x_1^\alpha x_2^\beta$ with $\beta={1-\alpha}$. I found: the minimization problem for demand to be $x_1^{*}(w_1,w_2,y)=\left ( \frac{w_2}{w_1}\frac{\alpha}{\beta} \right )^{\frac{\...
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27 votes
8 answers
6k views

What's wrong with the "airline marginal cost pricing" argument?

This is a very common argument found in introductory classes and texts. Here's Mankiw's version: Thinking at the margin works for business decisions as well. Consider an airline deciding how much to ...
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1 vote
0 answers
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How to calculate and interpret a marginal treatment effect (local instrumental variable)? (Intuition through simple example.)

I am working on the intuition behind local instrumental variables (LIV), also known as the marginal treatment effect (MTE). I have worked some time on this and would benefit from solving a simple. I ...
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2 votes
1 answer
126 views

Monopoly: Demand Curve and Marginal Revenue Curve Intercepts

I'm doing an introductory economics course, having never done economics before. In our topics, we covered monopoly and the principle that the marginal revenue slope is twice that of the demand slope. ...
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4 votes
1 answer
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Is it true that if marginal cost is constant, then average variable cost is also constant and equals marginal cost?

I'm inclined to think yes because marginal cost only depends on variable cost (fixed costs don't matter), but I'm not 100% certain. Basically, my thought process is that marginal cost of producing one ...
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2 votes
1 answer
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Question about an interpretation of the MRS

Given the marginal rate of substitution of $x$ for $y$ : $\frac{u'(x)}{u'(y)} $ I know one can interpret this as the amount of $y$ one is willing to give up for an additional unit of $x$, or the ...
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Returns to Scale Microeconomics

Are there any production function $f(x_1,\ldots,x_n)$ that is having decreasing returns to scale, given that the marginal product in every input $i$ in the function $f$ is constant?
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Explaining negative "cyclic" unemployment with a production function

First of all, here is a related post. Unfortunately, it does not answer my question. I have heard that there is an understanding of negative unemployment in economic theory. Obviously, absolute ...
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2 votes
1 answer
69 views

Piketty's explanation of elasticity of substitution (from his book Capital in the 21st century)

I have some trouble following the explanation of the elasticity of substitution between capital and labor and its implications on p189. Take this part: The relevant question is whether the elasticity ...
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2 votes
2 answers
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Is it considered acceptable or unacceptable to use currency as a measure of utility?

There will always exist at least one economist who condones measuring utility in US dollars and another who does not. However, I am wondering which way the majority of contemporary economists lean. ...
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0 votes
1 answer
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Profit maximization, when $MC = P$, in a simple supply table and curve

Our economics school book states that the profits of a company are maximized when MC = P. However, I am having some trouble wrapping my head around that. For example, I have the following exercise: ...
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1 vote
1 answer
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Understanding Rabin's Diminishing Marginal Utility of Wealth Cannot Explain Risk Aversion

I am trying to understand Rabin's Diminishing Marginal Utility of Wealth Cannot Explain Risk Aversion. I am struggling to completely understand the following: Suppose you have initial wealth of $W$...
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0 votes
1 answer
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Endogenous Growth in the case of externalities (Learning by doing)

so for the Learning by doing model productivity is defined as $$A_t=BK_t$$. Inserting this into the optimum conditions leads us to the following:$$r_t=\alpha BL^{1-\alpha}$$ and $$w_t=(1-\alpha)B^{1-\...
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0 answers
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Does a depreciation in the Dollar lead to a reduction in the US' marginal propensity to import?

Does a depreciation in the Dollar lead to a reduction in the US' marginal propensity to import? I thought it would because a weaker dollar makes imports more expensive, so consumers spend less of ...
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1 vote
3 answers
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What would be the income tax rate be if it were 'flattened'?

In some recent conversations/speeches (It's voting season), I have noticed many people do not understand how a marginal income tax system works. Not understanding how they are only taxed at the ...
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1 vote
2 answers
60 views

Is marginal cost different from extra cost?

I have been reading this resource which talks about why derivatives can be used to find the marginal cost. https://www.dummies.com/education/math/calculus/how-to-determine-marginal-cost-marginal-...
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1 vote
1 answer
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Why can utility functions be continuous, and what does this imply for marginal utility?

I am studying microeconomics at the introductory undergraduate level and two related but distinct questions are puzzling me. First, my textbooks express utility functions as continuous functions by ...
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1 answer
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Why does marginal cost slope upwards after the minimum point?

My textbook writes this on marginal cost: "The law of diminishing returns refers to the idea that as more of a factor (input) is used, with at least one fixed factor, there is some point at which the ...
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2 votes
1 answer
757 views

Why is the marginal utility of money assumed to be constant in Marshallian Theory of Consumer Behaviour

While studying the Marshallian Theory of Consumer Behaviour, I came across the assumption that the marginal utility of money is assumed to be constant. Can someone please explain why is this so?
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2 answers
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Why are marginal rates of substitution are identical at equilibrium consumption levels?

According to wikipedia, "At equilibrium consumption levels (assuming no externalities), marginal rates of substitution are identical". Why is it so? What does "equilibrium consumption levels" here ...
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1 vote
1 answer
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A question about the property of quasi-linear preference

In case of quasi-linear preference, why would one unit more of the numeraire good (good 1) give the same additional utility as spending an additional amount of wealth equal to the cost of one unit of ...
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1 answer
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Production function involving profit maximisation

​Hi, I don't get how the answer of d is deduced in this question because I don't think I made any mistakes in my calculation and have also used all the information given. After knowing L is 800, I ...
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-1 votes
1 answer
309 views

MRTS question involving production function [closed]

My work out shows constant MRTS and also increasing returns to scale. I thought the answer was C as I only found increasing marginal products of labour and capital. I really don't see how the answer ...
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1 vote
2 answers
391 views

In the real world, how does a firm know their marginal costs and revenue? How do they mathematically calculate MC=MR?

I understand the theory behind it but in practice how is this done?
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1 answer
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Marginal Cost Calculation issue

I calculated the Marginal cost for the below question. But it seems the results are wrong After coming up with an innovative idea for a new product, you paid 4000 to an industrial designer to draw ...
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1 answer
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fixed an marginal cost calculation issue

I'm trying to solve a question that is quite difficult for me. I did part of the question but, bit difficult to decide the exact answer for the below question. After coming up with an innovative ...
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2 votes
1 answer
24 views

Calculating marginal tax rates when near a cliff

When using tax and transfer microsimulation models, a common approach for calculating marginal tax rates is to recalculate the tax liability when adding $1 to earnings. This will take into account ...
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-1 votes
1 answer
931 views

Marginal rate of substitution(yx) question

For utility function U= ln(x)+Y How do I determine if MRS(yx) is diminishing or not for this question? I got Mu(x)=1/x and Mu(y)= 1 MRS(yx)=Mu(y)/Mu(x)= 1/1/x = x Does this mean that MRS(yx) is ...
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2 answers
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When can I say that a utility function has constant marginal utility?

Does this utility function have increasing/decreasing or constant marginal utility? $ U(x,y) = x^2 y^2 $ Now, $ f_x = 2xy^2 $, $ f_{xx} = 2y^2 $, $ f_y = 2yx^2 $, $f_{yy} = 2x^2 $ $ f_{xx} $ has no ...
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1 answer
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How to calculate marginal utility with two goods?

I'm just getting started as an amateur into microeconomics and I really can't understand this thing about marginal utility when more than one good is involved: Let's say I have the utility function U ...
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