Questions tagged [marginal]

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26
votes
8answers
4k 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 ...
6
votes
2answers
4k views

Understanding the shape of a Marginal Cost Curve

My class IB has just discussed allocative efficiency and hence consumer and producer supply. They explained the concepts with a diagram like this: It all made perfect sense to me until it was ...
6
votes
1answer
2k views

Homothetic preferences and utility functions

I know that if you have homothetic preferences and a utility function that represents it, then this utility function must present constant Marginal Rate of Substitution (MRS). My question is whether ...
5
votes
1answer
8k views

Is MRS supposed to have a minus sign or not? What's there to say about convexity of preferences?

If we have a utility function $U(x_1, x_2) = x_1(x_2+1)^2$ of some consumer, then $$MRS_{x_1, x_2} = \frac{\color{red}{-}(x_2+1)}{2x_1}$$ Some books have a $\color{red}{-}$. Others and Wiki don't ...
4
votes
1answer
151 views

Can marginal revenue be increasing?

As per my calculations, the derivative of the MR curve is given by: $MR'(q)=2p'(q)+qp''(q)$, where $p(q)$ is the inverse demand curve. Therefore,for a downward sloping demand curve, if the second ...
3
votes
1answer
310 views

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 ...
3
votes
0answers
2k views

Derive the cost function and supply function from production function

I didn't study economics, but am quite interested in the topic. I came to the question whether I could derive the supply curve / marginal cost function from the production function and I actually ...
3
votes
0answers
65 views

How should I calculate bulk selling price for a small business?

Some friends of mine run a small business, in a small garage-like space, with a few employees, making and selling "plumbuses". The typical customer orders about 5 plumbuses at a time. When I heard ...
2
votes
2answers
653 views

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 ...
2
votes
1answer
48 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 ...
2
votes
1answer
430 views

How is marginal benefit measured?

In my economics class, we're learning about the production possibilities frontier, marginal benefits, and marginal costs. The book uses the example of a company that can choose between producing colas,...
2
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1answer
29 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. ...
2
votes
1answer
71 views

Solve for the bundle component that makes one as 'well off' as earlier

Suppose we have a (presumably time independent?) utility function $U(x_1,x_2)$ for consumer Rita. 1. What is Rita's MRS of $x_2$ for $x_1$? $$MRS_{x_1, x_2} = \frac{MU_{x_1}}{MU_{x_2}} = \frac{\...
2
votes
1answer
44 views

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 ...
2
votes
1answer
23 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 ...
2
votes
1answer
463 views

Different terminology for discrete vs. continuous “marginal” concepts?

e.g. Marginal Utility. If the good you're consuming is discrete, like "slices of pizza eaten", then authors (or at least the author of my textbook) talk about Marginal Utility at each quantity eaten ...
1
vote
2answers
48 views

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. ...
1
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2answers
182 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?
1
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1answer
58 views

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?
1
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3answers
65 views

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 ...
1
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2answers
932 views

Proof that for increasing AC MC(Q)>AC(Q) at any Q>0? [closed]

I know the "common sense" proof, but how can we prove it algebraically?
1
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1answer
192 views

Find Indifference curve/s and Marginal Rate/s of Substitution given only one point

Arka likes fries. She wants to consume as much as possible. She consumes either regular (1 oz) or large sizes (5 oz). Draw her indifference curve through $(x_R, x_L) = (10,0)$ and her indifference ...
1
vote
1answer
381 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?
1
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1answer
108 views

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 ...
1
vote
1answer
85 views

Constant MC - Monopolstic Competition

I would like to know if it is possible to have constant marginal costs (MC) in a business that is operating on a market, that is defined by monopolistic competition? The company is a construction ...
1
vote
1answer
154 views

relation between the demand function and the marginal utility function

Can one say that the demand curve equals the marginal utility function? I have one course where this is stated. However, the demand curve dan be derived from combining the utility function with the ...
1
vote
1answer
3k views

Link between elasticity and marginal utility

The above is taken from "Economics" 8th Edition by John Sloman, a textbook commonly used at the introductory undergraduate level. I would like assistance in understanding the bracketed portion - how ...
1
vote
1answer
66 views

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 ...
1
vote
1answer
4k views

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 ...
1
vote
1answer
313 views

marginal utility of consuming vs marginal rate of substitution

good day all I am taking second year economics, but my textbook is not very clear on this topic A quoted from Intermediate Microeconomics and Its Application. Nicholson, Snyder. 11th Edition. ...
1
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0answers
10 views

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 ...
1
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0answers
19 views

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 ...
1
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2answers
56 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-...
1
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0answers
120 views

Vertical Marginal Cost curves

When would a marginal cost curve be vertical? I understand this happens when the marginal cost jumps, from say 0 to 100, but in such a case, I think there should be a discontinuity rather than a ...
1
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0answers
34 views

Where to start, to know the cost, in hours of work, necessary to produce one more car (or any other good)?

Let's say I want to buy a car. It costs that, so I can know that, for example, I have to work 3 months to pay for it. But does the car really needs three months of human work to be build? What is the ...
1
vote
1answer
2k views

Supply curve when the marginal cost is zero

The supply curve is built as the average marginal cost (MC), when the MC is equal or higher than the average cost (AC) The marginal cost increases, as a result of the opposite effect of marginal ...
0
votes
1answer
58 views

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 ...
0
votes
1answer
36 views

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: ...
0
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1answer
42 views

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 $W$...
0
votes
2answers
43 views

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 ...
0
votes
1answer
2k views

Why real wage equals marginal product of labor when return to scale is constant?

I can understand that real wage will equal MPL(marginal product of labor) when MPL is diminishing, because firms will employ more labor until MPL falls to real wage. While, if MPL is constant, ...
0
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1answer
40 views

Marginal tax rate question [closed]

In relation to an ordinary employee, the Prime Minister of Australia pays? a) the same marginal tax rate b) a higher marginal tax ate c) a lower marginal tax rate My answer for this was a), as it was ...
0
votes
1answer
17 views

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-\...
0
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1answer
92 views

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 ...
0
votes
1answer
40 views

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 ...
0
votes
1answer
53 views

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 ...
0
votes
1answer
228 views

Difference between the minimum selling price and the actual selling price

I'm actually wondering what the correct name for the difference between the minimum selling price and the actual selling price is? Let's say I'm having an product A. After all calculations(costs, ...
0
votes
2answers
117 views

Understanding the law of supply

In high school, I've never really questioned the law of supply, taking it as a given. As I begin an introductory economics course in university, "relearning" the fundamentals of Economics, I realise ...
0
votes
1answer
80 views

intuitive interpretation of the marginal return/productivity of capital being less than one

Let's assume you have a production function, f, and you want to know how the output changes with respect to capital, everything else constant (ceteris paribus), so you want to know the marginal ...
0
votes
1answer
364 views

Econometrics - marginal effect of x on y at average values

I was solving a prep Econometrics exam, with STATA output provided on two different models. They asked me to " Estimate the marginal effect of ability (x variable) on wage (y variable) for the models ...