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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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How can power/electricity prices be negative?

Bloomberg shows this chart: I understand the above chart to mean that consumers were actually paid to use electricity. (Please correct me if I'm mistaken.) I was wondering how this is possible? How ...
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2answers
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What is the Walras law vs first welfare theorem

As far as I know, both of the first welfare theorem and the Walras law are closely tied to the invisible hand. what is the difference between them? thank you very much for your help
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If both supply and demand are inelastic, who bears the burden of tax?

In particular, I have a hard time thinking about what this would scenario would look like in a graph. For the sake of simplicity, I guess linear demand and supply would suffice for this question. But ...
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15 views

Preference: Convexity and Monotonicity

I need an example of a Convex, non-monotonic preference Non-convex, monotonic preference I figured that an example of non-convex, monotonic utility preference could be $U(x,y)=x^2+y^2$. For convex, ...
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Market entry limit pricing question

In a certain market where entry is free but only 1 firm is there, market demand is $Q=(1850-100P)/3$ Total cost is $C(q)= 0.01q^2 + 2q + 400$ - this is for firms that want to enter this market, the ...
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15 views

Minimum observations for an econometric SEM

Good day for all: I have an econometric SEM with three equations similar to: $$ A = \beta_0 + \beta_1 B + \beta_2 G + \beta_3 H + u_1 \\ B = \beta_4 + \beta_5 C_{-1} + \beta_6 D_{-1} + \beta_7 E_{-1}...
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1answer
37 views

Everyone has the same marginal rate of substitution

I'm currently reading Varian's Intermediate Microeconomics and what struck me, is this statement on page 89 of the 8th edition. If everyone faces the same prices for the two goods, then everyone ...
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2answers
1k views

Transformation Function

In Mas-Colell microeconomics textbook I have found that profit maximization problem (as well as many further optimization tasks) could be represented with application of some transformation function (...
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0answers
38 views

What should be the elasticity of substitution in a competitive exam in order to give the students incentives to work to exhaustion and choose wisely? [on hold]

A power mean https://en.wikipedia.org/wiki/Generalized_mean Has an elasticity of substitution always equal to $\dfrac{1}{1 - p}$ Leontief averaging of grades seems too punishing and counter ...
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1answer
24 views

Fehr & Schmidt, ultimatum game, inequaltiy aversion, perfect subgame Nash equilibrium

I am preparing for an exam. I have found an old exam but I have no solutions for it, so I tried to solve it, but I dont know if I did it correctly and need therefore your help. The problem looks as ...
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1answer
73 views

Remittance: Migrant workers sending money to their families

I wonder about the role of migrant workers in a general economic context. Migrant working appears all over the world and on many time and space scales: around cities (e.g. commuters) inside ...
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4answers
3k views

Can someone explain graphically why MRS is invariant under monotonic transformation?

Let $U(x,y)$ be a utility function. Suppose I have an indifference curve for which $U(x,y) = \bar{U}$. Then $dU = 0$ along the curve and I can rearrange to find the MRS. Suppose I have a monotonic ...
3
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2answers
105 views

Why do housing and parking cost more in urban than in rural areas, but road access doesn't?

In city centres, land is more expensive than in suburban or rural areas, as land is scarce. Consequentially, housing and parking in cities cost more. However, the same is not true for using the road ...
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1answer
31 views

discount factor, function, and rate

Consider an exponential discount factor $\delta\in(0,1)$. Similarly, consider an exponential discount $\textit{function}$: $g(t)=\delta^t$. Then, is defining the discount $\textit{rate}$ as below a ...
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0answers
36 views

Independence Axiom for Linear Utility - Who proved this first?

Who first proposed the following axiomatization of linear utility using Independence? I remembered that it was Debreu but I am not so sure. What was the first paper proving this? Consider a ...
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1answer
61 views

Show that this income tax is effectively a lump sum tax

This is a standard income, leisure tradeoff model. $$ \max_{c,l} \min\{c; l\} $$ $$s.t. \space c = w(1-t)(1-l)$$ $l$ is leisure (where total time is 1), $w$ is wage, $c$ is consumption, and $t$ is ...
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1answer
116 views

Stocks and shares [on hold]

Do LARGE temple donations help an investor, a company or both, if the investor is associated with a/the company? Are LARGE temple donations helpful for companies for better performance? ...
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0answers
22 views

What quantities of capital and labor should the firm use if it wants to produce at minimum cost?

A firm's production function is given by $Q=F(K,L)=\sqrt{K}\sqrt{L}$. The price of capital is 40 and the price of labor is 10. What quantities of capital and labor should the firm use if it wants to ...
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0answers
24 views

Why should houses have the same price for a given supply

So I'm reading Varian intermediate microeconomics and in chapter one it's about housing. Suppose we have a inner ring and a outer ring in a city where there is a university. In the inner ring supply ...
2
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1answer
21 views

A weaker definition of local non-satiation can also imply indifference “curve”

Let $u$ be a continuous utility function on $\mathbb R^2_+\setminus\{0\}$. Consider the following three conditions: Local non satiation says that for any $x \in X$ and $\epsilon > 0$, there exists ...
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1answer
25 views

What is the iff condition for a preference with linear Engel curves (all Engal curves are linear)?

If we restrict the consumption at $\mathbb R_+^n$, then it seems like we are implicitly assuming that the Engel curve pass through the origin, so the iff condition would be homothetic preference. ...
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0answers
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Time-weighted return

I can't seem to work out the answer to this question: Suppose you purchase one share of the stock of Volatile Engineering Corporation at the beginning of year 1 for $36. At the end of year 1, ...
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0answers
33 views

two period consumption problem

Ms. A earns 25,000 dollars in period 1 and 15,000 dollars in period 2. Mr. B earns 15,000 dollars in period 1 and 30,000 dollars in period 2. they can borrow money at an interest rate of 200% and can ...
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0answers
21 views

optimization problem for two individuals

Two flat mates 1 and 2, rent a flat and play their own music on the only CD player owned by flat-owner. They both like their own music, but dislike the music played by the other. Given the timing ...
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1answer
56 views

robinson economy with production

Facing a little bit of a problem with this questions, did a similar one BUT the utility function was not linear and got MRS dependent on goods (was not just a number) - here I am at a loss. The ...
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0answers
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Affordable reservation prices

An important theoretical construct in microeconomics seem to be reservation prices, i.e. the maximum price a person is willing to pay for something. Consider a typical market basket of goods a person ...
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0answers
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Pareto Efficiency [on hold]

Consider each of the two statements below whether they are true or false. Please give the proof for each. A. All Pareto-efficient allocations are envy-free. B. All envy-free allocations are Pareto-...
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0answers
24 views

I have a dataset. How do I convert this data into Indifference Curves?

This is all hypothetical. I understand indifference curves. However, I don't understand how they are produced. I read this question, and the survey answer made sense to me... Research Design: ...
3
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1answer
31 views

Trying to apply in practice the theory of finding the optimal price in a cournot competition

I recently received my bachelors degree in economics. For fun I wanted to try to apply some micro-economic theory of finding the optimal price in a cournot competition. I wanted to do this for a ...
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0answers
29 views

The law of supply and demand - How does it work?

I've learned what the principle of supply and demand says, and would paraphrase it like this: The price of a good is at equilibrium when supply and demand are equal. Or with other words: The ...
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0answers
24 views

Finding the optimal consumption bundle given the strictly concave utility function $v(x,y) = U(x) +y$?

I am also finding it difficult to understand what are the fundamental differences between analysing optimal bundles between concave and convex functions ? Does it also happen that the optimal bundle ...
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1answer
35 views

Decreasing and increasing returns to scale question

Hi, I have deduced that this function exhibit increasing returns to scale but I am not sure how to verify part d. My answer doesn't show that there is decreasing returns to scale but I can't be sure d ...
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0answers
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Rotation of Quasilinear Utility

Let $u(x,y)=f(x)+y$ be a quasilinear utility. Now we rotate it by 45 degrees, (such that the $x-$axis becomes the direction of $(1,1)$) $v(x,y)=f(x-y)+x+y$. Is $v$ also a quasilinear utility? What is ...
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5answers
259 views

Convexity of indifference curve

The convexity of an indifference curve results from the fact that the absolute value of its (negative) derivative, which is the marginal rate of substitution is decreasing. But why do we say that it's ...
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0answers
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What is the price of this perfectly competitive market in long run equilibrium?

question is as follows: the average cost of a firm in a perfectly competitive industry is given by 5q2-2q for all values of q greater than zero. In long run equilibrium, the price will be a) 100 or ...
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2answers
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Convexity of the Market Demand Function

The market demand function can be either concave or convex. I am looking for conditions under which a general market demand function can be considered convex. For example would convex preferences or a ...
2
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2answers
241 views

How can perfectly competitive firms earn zero profits?

Consider a firm that chooses the quantity of labour $L$ to hire which maximises its profits. As usual, we suppose that output $Y$ is increasing in $L$ but at a strictly decreasing rate; and for ...
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1answer
14 views

Can a monopoly supply negative units to one of it's two markets?

A question I have seen in my microeconomics textbook is as follows: Consider a monopoly supply to both a domestic and foreign market, where the market demands are: Yd(pd) = 20 - 2pd, hence pd(yd) = ...
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0answers
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Linear Homothetic Utility

A Homothetic Utility is where $$ \forall x,y, \forall a \in \mathbb{R}_+: \ u(ax,ay)=au(x,y) $$ (or its monotonic transformation). A linear Homothetic utility is defined as $$ \forall x,y, \forall ...
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1answer
66 views

Stackelberg Oligopoly 3 firms [closed]

Imagine that there are 3 firms in a monopolistic market, F1, F2 and F3. Firms 1 and 2 are incumbent firms and act simultaneously whereas Firm 3 observes the actions of both firms before deciding ...
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1answer
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NASH equilibrium [closed]

How to approach questions like these: In a two player static game with a discrete strategic space that permits each player to chose one of the four possible strategies what is the maximum number of ...
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1answer
34 views

Independence and Reduction Axioms

I have read that the Independence of Irrelevant Alternatives axiom in expected utility theory implies the fact that compound lotteries are equally preferred to their reduced form simple lotteries. ...
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1answer
38 views

Demand correspondence is both upper and lower hemi-continuous; is the preference continuous?

$\succsim$ is a weak order over $\mathbb R^L$. For a closed budget set $B\subset\mathbb R^L$, define demand correspondence: $$D(B)=\{x\in B|x\succsim y\forall y\in B\}$$. We know that $D$ is always ...
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1answer
54 views

Supply curve for a competitive firm with constant MC

I know that for a perfectly competitive firm, the supply curve is given by $p=MC \ge AVC$, where $AVC$ is the average variable cost. Now I get really confused when the $MC$ comes out to be a constant....
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1answer
47 views

Numerical Question on a subsidized monopoly

Suppose a government agency has a monopoly in the provision of internet connections. The marginal cost of providing internet connections is $ \frac12$, whereas the inverse demand function is given by: ...
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2answers
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Can marketing efforts be considered to be a factor of production?

This is a sightly unconventional question, but I want to know whether marketing efforts can be considered as a factor of production. After all, if no one knows about your product, you can't make a ...
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1answer
36 views

First Order Stochastic Domination and lottery preferences

Let $L$,$L'$ be two lotteries over the real numbers. Let $u$ be an increasing Bernoulli utility function. Let $F_L$, $F_{L'}$ be the CDFs of the two lotteries. We wish to show that $$L \succ_{FOSD} L'...
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1answer
38 views

Maximization when parameters are unknown

I would like to know if my understanding about how to find a maximum of the function when some parameters are unknown is correct. Consider the following maximization problem. $\max_{x}V=\int_0^{a(x)}...
2
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1answer
90 views

Elasticity with perfectly inelastic / elastic demand

When a change in price results in an infinitely large response in quantity demanded, demand is perfectly elastic. The perfectly elastic demand curve is horizontal. At price P, consumers will buy a ...
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3answers
85 views

Perfectly competitive firms. Economies of scale

My textbook says the following: "Perfectly competitive markets only achieve productive efficiency if you assume that there are no economies of scale in the industry." Why is this the case? And by "...