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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 to calculate income and substitution effect when equal marginal principle is violated

I am trying to calculate substitution and income effect for 2 goods, x and y. Given that marginal utility x = 1, marginal utility y = -a (unknown number), price of x = 16, price of y = 20, how ...
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2answers
426 views

Finding Optimal Consumption Bundle

Suppose u(x,y)=min{x+y,4(x)^1/2,4(y)^1/2} , Px=1, Py=2, M=5 . Here, Px, Py and M are the price of x, price of y, and the Income. Give an example of the optimal consumption bundle of x and y for this ...
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Why is the expected value conditional on the trade taking place in an adverse selection problem?

I have been asked the following question, and I don't understand why the expected value of the firm is conditioned on the trade taking place. "Suppose that a firm owns a business unit that it wants ...
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1answer
21 views

What are the identification problems in measuring peer effects?

I am currently writing my bachelor thesis on peer effects. However, the more I read about the identification problems (I read e.g. Manski, Moffitt, Angrist, Goldsmith et al.), the less I understand. I ...
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1answer
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separable utility function and cross price effect

Suppose that consumer's utility function for three goods is separable, that is, $U(x_1, x_2, x_3) = f_1(x_1) + f_2(x_2) + f_3(x_3)$ ...(i) where $f_i$ is increasing and strictly concave, i=1,2,3. ...
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Value of companies with circular ownership [duplicate]

Given two companies, total assets of $100 million each. Company 'A' owns \$50M of company 'B'. Company 'B' owns \$50M of company 'A'. If you look at the value of both companies do you ...
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17 views

Law Of Variable Proportions

In the Law of Variable Proportions, it is said that a producer prefers to work in the second phase where it is the phase of diminishing returns while number of variable factors are increased. But ...
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2answers
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The economics of continually selling a product for under its market value?

What are the economic principles behind a company continually selling a product for well under its market value. Continually here expressing that it does not appear to be some short term method to ...
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4answers
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Explanation Rational Expectations

I am struggling understanding the concept of rational expectations. Can someone explain in simple words the concept of rational expectations? Does someone know a good (online) source explaining ...
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0answers
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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 ...
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1answer
67 views

Interpretation of Interesting Utility Function

Solving introductory microeconomics problems I have come across the following type of utility function: $$ f(K,L) = (\alpha K^{\frac{\sigma - 1}{\sigma}} + (1 - \alpha) L^{\frac{\sigma - 1}{\sigma}})^{...
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3answers
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Why are second price auctions preferred if they don't maximize expected revenue?

The reasoning usually given for why you would use a second price auction (SPA) as opposed to a first price auction (FPA) is that FPA encourage underbidding while SPA encourage truthful bidding. That ...
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3answers
80 views

How to engineer the economic system, so that an individuals self interest leads to fulfilling collective interest

So it is said that Adam Smith said that self interest leads to collective interest. This is obviously not the case. We do not have a society that maximises the collective good*. My question is, Is ...
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0answers
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Prove that in presence of many goods, the law of DMRS implies that at least one good must be a net substitute for any other good

I've been reading a book where the author claims that "if there are two goods they are always net substitutes. Along an indifference curve an increase in price of good 2 leads to less of good 2 and ...
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1answer
55 views

Consumer Utility Maximization equivalent of economies of scope

Economies of scope captures the idea of having efficiency in variety. I've come across this idea only in producer theory to capture the idea that companies may benefit from their ability to reduce ...
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1answer
59 views

Why slope is constant in demand/supply curve?

I was reading Mankiw and it showed variation of demand/supply curve with external factors. However, in all the cases the curves only shifted but didn't change in shape. What I am wondering is why the ...
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1answer
43 views

Common sense of economics as reflected in proverbs [closed]

May I ask what other proverbs reflect the common sense of economics, such as those who dig for gold are not better than those who sell shovels? What I'm talking about is that during the Gold Rush in ...
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5answers
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Why do firms losing money almost always reduce labor costs via layoffs instead of pay cuts?

At least in the United States, firms seem to almost always reduce labor costs via layoffs rather than pay cuts. Pay cuts are so rare that they're literally headline news. From an economic standpoint, ...
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1answer
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Anti Piketty Confusing Movement Along Demand Curve with Shift

In Anti-Piketty, the author's claim that the statement "If the supply of any good is insufficient and it's price is too high, then demand for that good should decrease which should lead to a decline ...
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5answers
331 views

Why does supply equal demand?

My question is simple: in theory, why should we expect the total quantity that firms want to sell to be (at least approximately) equal to the total quantity that consumers want to buy? As I ...
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3answers
97 views

modelling disutility from over consumption

In introductory economics courses the concept of marginal utility is illustrated through simple examples like how much benefit one gets from eating another slice of pizza (i.e first slice provides 100 ...
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1answer
37 views

Supply Deman Equilibrium

When in surplus or shortage, in order to achieve equilibrium price must change. I understand that. But what if when in surplus, suppliers choose to instead sell less, but for the same price? Vice ...
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1answer
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Solving differential equation in The Economics of Superstar (by Rosen)

I am currently reading "The Economics of Superstar" written by Rosen (1981). I don't understand one differential equation he used in the paper. The equation is as follows: $$\frac{dp}{dz} = (p+s)/z.$$...
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1answer
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Should publishers of scientific papers such as Elsevier be regulated by the government?

To get a pdf copy of a paper published in Elsevier is quite difficult. You need to pay a high price. Publishers like Elsevier used to have good reasons to charge people a lot: before the invention of ...
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1answer
144 views

Pareto efficient allocation and core allocation in 2 person exchange economy with discontinuous utility

I understand that with continuous and strictly increasing utility function we can find Pareto efficient allocations by looking at the allocation that satisfies $MRS_1 = MRS_2$. However, I was not sure ...
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Research community around logistics micro-economic topics?

Is there the equivalent of a Rand Journal of Economics for the topic of logistics, focusing on the micro-economics of productivity gains via automation or disruptive technologies. There is the ...
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1answer
21 views

Effect on Large Company on Redistributing Profit from Shareholder to Employees

Looking over the information in the tour I'm aware this might be too opinion based or require too long answers, so I apologies in advance if this is off topic. In an attempt to keep the question ...
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1answer
76 views

Pareto-optimal allocations in the Edgeworth box

If agent A has utility function $u(x_1, x_2)$ and agent B has utility function $v(x_1, x_2)$, what are the equation(s) that characterize the Pareto-efficient allocation of goods in the Edgeworth box? ...
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1answer
25 views

Price Derivation in a Production Function

Here is a composite goods production function: And here is the price ratio of Ys and Yg, derived from their marginal products: Then the author normalized the price of final goods Y to 1 and somehow ...
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1answer
83 views

Nested CES Production Function

If I have four input factors (a, b, c, b) and I want to construct a nested CES production function such that (a, b) are substitutes, (c, d) are substitutes and [(a, b), (c, d)] are complements, I.e. a,...
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0answers
90 views

Cobb Douglas Production Function Substitutes or Complements?

I see that there is a question similar to mine but it is does not specifically answered. Here is my question: I understand that, in a Production Function, when elasticity of substitution is greater ...
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0answers
28 views

Query regarding best response curves

Hal Varian intermediate microeconomics ch-29(game application), page-546 to 550, subheading-games of competition. 1) in page 548, to quote the author "what about column? We can perform a similar ...
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Regression on derived consumer preference

I have a data set with some demographics of consumers who bought a product that can be used to imply their preference (beta) using Cobb-Douglas (see comments of original question). I’d like to check ...
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1answer
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Consumer preference and price in the Cobb-Douglas function

I believe I’m using the most basic version of Cobb-Douglas: $U(x,y)=x^\beta * y ^{(1-\beta)}$. The question I have is: in this example would a consumer’s preference ($\beta$) change if the price of ...
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1answer
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Devising a model for inflation for a closed points system

I am working on a project that involves points. The idea is that users will earn points and redeem them for certain rewards. The means via which the users earn are fairly limited (They can attend a ...
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2answers
227 views

What is excess demand/ excess supply?

I've been reading up on Walras' Law and thought I understood it pretty well. However one of my friends asked me point blank what is an example of excess demand or excess supply is and I had some ...
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0answers
28 views

Profit maximization under stochastically independence

Consider a risk-neutral profit-maximizing firm that produces output y from input x using the technology y = f(x), f’(x) > 0 and f’’(x) < 0. It is possible to ob-tain x from two sources: either ...
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0answers
21 views

Optimal auction type or mechanism design for property sale

What is the optimal auction type or mechanism design for the sale of a single plot of land with the following attributes: in a city suitable for building may be developed undivided, or may be ...
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1answer
69 views

MICROECONOMICS: Optimal quantity produced in a Perfect Competition Market

Suppose the Total Cost function of a firm in Perfect Competition is given by: $$C(q) = 450 + 15q + 2q^2$$ The market price is $P = 15$ per unit Determine the optimal quantity produced by ...
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Consumption bundle

An economics grad student went one night to pub-x where beer and whiskeys both cost £1.00, and drank six beers and four whiskeys. The next night (eve of the comps) he went to the pub-y where beer ...
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42 views

Risk-neutral principal question

An employer is hiring a worker to work on his behalf. The worker produces an output whose value is a random variable. The employer writes a contract that pays the worker w(x) if the output is worth x. ...
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1answer
40 views

How does this demand function satisfy the Weak axiom if it doesnt satisfy the necessary and sufficient conditions?

Let $x_k = \frac{w}{\sum{p_l}}$ for $k = 1...L$ be the demand function. This demand function does satisfy the weak axiom and this can be shown simply. The slutsky matrix is an $L \times L$ matrix ...
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0answers
21 views

Determine the range for the amount demanded

A consumer consumes two (and only two) goods A and B. Both goods are ìgoodî in the sense that more of either is strictly better. The consumerís preferences are well-behaved (complete, transitive, ...
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4answers
141 views

What is economics?

It has been disturbing me since the first year of college that the meaning of economic is express too much as it is too less. "Study of scarcity, utilize the limited resources to satisfy unlimited ...
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0answers
67 views

Insurance question: need a brief explanation

Two risk averse people are identical in every way (including wealth, W , amount of loss, L, and utility function, U(W)) except they have different probabilities of loss. Suppose they want to buy ...
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0answers
64 views

Duopoly Game - asymmetric info

Question 1: Assume that a firm is a θ-type monopolist that produces a good of quality θ. The firm knows the quality. There is no fixed cost. Quality can be either high (θ = 2) or low (θ = 1). A ...
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1answer
59 views

First Price Auction with Reserve Price

I'm trying to solve the following question: "The seller wants to auction off a single item to two bidders, the valuation of each bidder is an iid draw from a uniform distribution on $[0,1]$ where ...
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64 views

Signaling questions (separating equilibrium)

Consider two firms Inverse functions: $p(q)=max\{a-q,0\} $ $q$ is total production and a is positive constant. This value of a takes two values ah=2 (high demand) and aL=1 (low demand). Their ...
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what is the project monitoring and impact analysis(PMIE)?

what is the project monitoring and impact analysis(PMIE)? Can anyone explain basic features of this?
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1answer
48 views

finding the returns to scale of a production function

Find the returns to scale for he following production function- $(x_1 + 1)^.5 (x_2)^.5$ My attempt, Let $f(x_1,x_2)=(x_1 + 1)^.5 (x_2)^.5$ And $g(x_1,x_2)=(x_1)^.5 (x_2)^.5$ Now, $(x_1 + 1)^.5 (x_2)^....