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Questions tagged [microeconomics]

Microeconomics is a branch of economics that studies the market behavior of individual actors (usually firms and consumers) and the aggregation of their actions in different institutional frameworks (usually the market).

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Deriving demand function from utility function

How do I derive the demand function from U=y + 2√x Currently I have, MRS = 1/√x = Px/Py, so, Py = Px√x Using the budget line: I= XPx + YPy, I = XPx +Y(Px√x) Which simplifies to X = (2I+Y^2Px +/- y√...
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Deriving eqation of isoquant

Suppose the production function is given as 𝑄 = 𝐿𝐾. Suppose also that the price of labor 𝑤 = 5 and the price of capital 𝑟 = 20 1) Derive the equation of the isoquant corresponding to this ...
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Finding long run equilibrium price, quantity and number of firms with a linear average cost function

I've been been brushing up on my micoreocnomics lately and I came across a question in Perloff that looked really simple, but for some reason I am struggling to answer: Assume we are in the long run ...
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Two-person household labor supply

The most basic model of labor supply is $$\max U(c,l) \\\text{s.t. } c=wh \\l+h=T$$ which leads to the solution $MRS_{c,l}=w$. How would we solve this problem if we had a two-person household: $$\max ...
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Finding Optimal Bundle and Change in Satisfaction after Changes in Budget Constraint

I am looking at the following exercise and struggling with the solution proposed by my microeconomics book. A consumer spends all his income on two goods, X and Y. The prices he paid and the ...
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Deriving the INADA conditions for CES production function

Suppose that we have a CES production in intensive form with the following marginal productivity for capital: $$MP_{K}=\alpha A^{\beta }\left (\frac{y}{k} \right )^{1-\beta }$$ As we know, the CES ...
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Dominant Firm and Identical Competitive Firms

An industry consists of a dominant firm with C(Qd) = 32Q_d+Q_d^2 and 8 identical competitive firms with costs C(q) = 70...
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How to Calculate Price Elasticity of Demand When Perfectly Elastic?

When we have perfect elasticity, the demand curve is a horizontal line and the elasticity of demand coefficient is equal to infinity. How do we arrive at a solution equal to infinity? We know that ...
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Gilt edged securities with lottery prizes worth billions of dollars and other international currencies [on hold]

CAN more and more gilt edged securities coupled with many Australian lottery prizes worth many billions of dollars and other foreign currencies equal tradings of international traders?I have no ...
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Profit maximizing, Quantity and Price with Dominant Firm and Competitive Fringe

A dominant firm operates in various markets. In one of these markets, it is a monopolist and produces with the following cost function: C(q1) = 5q1. The market demand is P = 1005 - Q. (a) Find the ...
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The government in a mixed economy may… [closed]

1.levy taxes 2.provide public goods and services 3.redistribute incomes 4.execute different regulatory policies 5.All the above
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Changing Constant Factor Demands

I’ve been given this true false question: Consider the minimization of wL + rK given F(K, L) $\geq$ Q with F(K, L) strictly increasing in K and L. The conditional factor demands K*(Q, w, r) and L*(Q, ...
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Ownership in Neoclassical Economics/Property Rights Question

I'm currently looking at New Institutional Economics and I can't get my head around the assumption of the neoclassical irrelevance theorem stated by the neoclassical economics. It doesn't matter ...
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how do i graph the isoquant given a pruduction function? [closed]

What does the min mean in here? How do I graph the isoquants given this equation? Any help would be much appreciated, thank you!
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Are modern conglomerate mergers better or worse for economic competition?

Modern conglomerate mergers differ from those from decades ago as, even though they takeover smaller companies, they have a more narrow focus on related business and, in order to be successful, have ...
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How to evaluate customer lifetime value

I am learning about calculating Customer Lifetime Value (CLV). So far I have learned that there are many ways to calculate it, like stated here, which I understand, different industries will also need ...
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1answer
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Utility maximimization for unusual Leontief utility function

The problem is basic utility maximization subject to a budget constraint with $$u(x,y) = min\{x+y,4\sqrt{x},4\sqrt{y}\}$$ $$p_x = 1, p_y = 1, M = 4$$ I will have to first plot the Indifference ...
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2answers
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Proof of Choice Coherence in Kreps (2013)

In the first chapter of Kreps (2013), there is a proof that the choice function satisfies choice coherence. Kreps writes: I do not understand how the third sentence of (b) logically follows from the ...
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Economics of Selling Software

My understanding: Normally, selling a product has an increasing marginal cost per unit produced. Very often this increases more and more due to poor allocation of resources (diminishing returns). ...
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1answer
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Question about Locally non-satiated preferences

If a consumer has locally non-satiated preferences, which of these 2 bundles is preferred and why? Bundle A: (1,3) Bundle B: (4,2) This is what I've reasoned from my very limited understanding of ...
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37 views

Optimal choice for a weird leontief function

Compute the optimal choice for a consumer with the following utility function: $$u(x_1, x_2) =\max \{\min(2x_1, x_2), \min(x_1, 2x_2)\}$$ I'm familiar with computing optimal choice for perfect ...
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1answer
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Effect of Promotional Sales on a Demand Curve

If there is news that shops are having a sale on dress shoes (beginning right now), will it shift the demand curve for this good? I initially said yes, as a sale should increase the quantity demanded ...
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1answer
25 views

Giffen Goods & Complementary Goods

Consider that good X and good Y are complements and good X is a Giffen good. If I increase the price of good X, what affect does this have on the price and quantity demanded of good Y? My reasoning ...
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1answer
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What is the assumption behind “indifference curve does not cross”?

If only weak-ordering and continuity is assumed, "ICs" can definitely intersect. If we assume Monotonicity or convexity in addition to weak-ordering, then we can get "no cross of IC". But those two ...
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Take It Or Leave It Strategy: Social Optimum

Here is what I understood Using Backward Induction, I inferred that buyer offers a price, say, $P$ and the seller will sell only if $P \geq c(I)$. Setting the lowest possible Price that will ensure ...
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Net Present Value with investments in multiple phases

I am trying to calculate the Net Present Value for a theoretical project in which, unlike most examples in textbooks and on internet tutorials, investments do not only happen in t=0, but they also ...
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1answer
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Strict preference and utility function

If strict preferences over three outcomes x, y and z, do not satisfy transitivity, so that $x \succ y \succ z \succ x$, then these preferences cannot be represented by a utility function. Is this ...
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1answer
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The impact of news in the stock market?

I am currently working on a large sample of textual data from news articles. I was just wondering whether there exists any studies which tries to explain the market anomaly known as "The-Day-Of-The-...
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Implications of homogeneity of degree zero in the Walrasian demand function

Mas Colell, Winston and Green's Microeconomic Theory (3rd edition) has the following proposition (2.E.1): What is its proof? Definition of homogeneity of degree zero: Notation: $D$: Derivative ...
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1answer
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Quasi-Linear Functions

I understand that quasi-linear functions have a general form $U(x_1,x_2,...,x_n,y) = f(x_1,x_2,...,x_n) + y$ and that for a quasi-linear function, the income effect with respect to the other ...
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1answer
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3rd Degree Price Discrimination

I came across a True/False question in my economics problem set: Is the following statement true or false? "A monopolist can practice third-degree price discrimination in the two markets it ...
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1answer
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How to find the optimal consumption basket? [closed]

A consumer has the following utility function and income. 𝑈(𝑥, 𝑦) =1/2 * ln 𝑥 + 1/2 * ln y Price of 𝑥 = Price of 𝑦 = 100. Income = 1000 Suppose that the consumer gets 2 redeemable coupons for ...
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Equivalence of definitions of upper contour sets

Mas-Collel, Winston and Green's Microeconomic Theory (3rd editions) offers two definitions of the upper contour set: How can the equivalence between the two definitions be proved?
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Insurance and Hirshleifer effect

I am trying to understand the statmement that 'public information kills insurance opportunity' -- referred to as Hirshleifer effect. Does it (in general) lead to some undesirable outcomes? Could you ...
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Calculating Demand curve function from Elasticity of demand, price per quantity and quantity purchased?

For an assignment I have to model the demand function and find consumer surplus based upon elasticity of demand, price per quantity and quantity purchased. Ill copy and paste the assignment below and ...
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1answer
38 views

Constructing a Production Possibility Curve (PPC)

I am trying to create a PPC, in which there are two goods (e.g. apples and oranges). My question is, does it matter which goods are plotted on the x or y-axes? The opportunity cost per good remains ...
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Supply/Demand Shift (Find New Equilibrium)

Starting: supply curve $y=x+10$ and demand curve $y = -x+30$ with equilibrium at (10, 20). The problem states that DEMAND shifts leftwards by 3 units and to find the new equilibrium. My professor did ...
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Guess 2/3 of the average with integers - mixed strategy equilibria?

The "Guess 2/3 of the average" game (Wikipedia) is a game in which n people guess what 2/3 of the average of their guesses will be, and where the numbers are restricted to the integer (in this case) ...
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2answers
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Matchstick Game

Consider the following $2$ player finite extensive game. Player $1$ moves first. She must choose an integer from $1$ to $10$, and place that number of matchsticks on the table. Next, Player $2$ must ...
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1answer
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Imperfect Substitutes and Utility Funcitions

The utility function for perfect substitutes is defined as U(X,Y) = aX + bY. If the two goods X&Y are imperfect substitutes what would be their utility function?
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What's the market equilibrium price for the used good?

On a perfectly competitive market, a buyer wants to buy a used good. He is willing to pay $30$ for a badly used good, and $60$ for a nicely used good. The seller is willing to sell a badly used good ...
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What is the difference between ordinary income effect and endowment income effect?

As far as I understand: Ordinary income effect: A change in the price of good 1 will affect my future behaviour (the quantities that I will buy of good 1 and good 2). But it doesn't really affect my ...
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Will an increase in a complementary good with price unchanged move demand curve right and quantity demanded right, as well?

This graph shows the quantity of electricity that consumers demand at a regulated price set by the government. Adjust the graph by dragging the dot or the demand curve (or both) to show the effect of ...
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Strategy sets and SPNE

I need to find the startegy sets for the two players in this game. I understand that the game has only one subgame, that is, the entire game. I cannot seem to understand the strategy sets of the ...
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How to control for population in Difference-in-Difference?

Random example, but let's say I'm examining the effect of a health program on influenza cases in India. They just randomly start the program in 7 of the 29 states. I have data on the number of flu ...
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1answer
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What are general equilibrium effects?

Im reading alot on public finance and have been seeing alot of mention of measuring "general equilibrium effects". I know what general equilibrium is, but i dont know what general equilibrium ...
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MRS of good X for good Y

I'm having some confusion with using the terminology of MRS. For example, let's take up this question: If good 1 is a “neutral,” what is its marginal rate of substitution for good 2? The answer is:...
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Profit Maximization and Returns to Scale

Assume a labor-intensive production function: $Q(L)=L^\beta$ Find demand of labor that maximizes profits (unconditional demand $L(p,w,r)$), the demand of labor that minimizes costs (unconditional ...
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1answer
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Have I found the correct Emission Price

Let's say that there is a hotel owner $(H)$ and a woodworker $(W)$ working in close proximity to one another. The woodworker produces $x$ units to sell at market at $p_{x}=6,5$. From the woodworking ...