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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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Expenditure minimization with Leontief utility

I need to solve the expenditure minimization in a context where $u(x,y) = min\{x,y\}$, i.e. where utility is Leontief. The minimization problem is $$\text{min}_{x,y}\,\,p_xx+p_yy \\ \text{subject}\,...
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Does $U(x,y) = x^2 + y^2 + 2xy$ represent transitive, monotonic preferences?

I'm a monitor for a microeconomics course and a student came up with this question. That this utility function represents monotonic preferences I think it's clear. Both goods have positive and ...
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1answer
114 views

What is the concept of ordinal utility?

I have read in many books that since utility cannot be measured - so ordinal concept or comparison concept is used. If that is so, how can one define a mathematical function for utility which gives a ...
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0answers
33 views

Anscombe and Auman Expected Utility

I would like to hopefully get some insights on the Anscombe and Aumann Expected utility. I've read some proofs and understood the Expected Utility Theorem (VNM) which allows us to approach consumers ...
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2answers
76 views

Regarding the group formation in an oil-price experiment

I'd like to have your opinion on the following; Assuming that I'm doing a research on setting the optimal price for gasoline for a company and my client wants me to perform a study on​ customers' ...
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1answer
126 views

Completeness from an example

I have a set $X = \{1,2,3\}$ and a binary relation $B = \{(1,1),(1,2),(1,3),(2,3),(3,1)\}$. I am trying to understand if this relation is complete. The completeness definition I am using is if for ...
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1answer
167 views

Deriving average productivity from a CES production function

Following the work of Raurich et al. (2012) I got stuck trying to derive the average productivity starting from the following CES production function: $$Y=A\left [ \alpha K^{\frac{\sigma -1}{\sigma }}...
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2answers
86 views

Ruling out boundary solutions in Utility Maximization

Solving the basic Utility Maximization Problem, i.e. \begin{align} max_{x\geq 0} u(x) \\ s.t. \,\,\, p^Tx\leq w \end{align} we get the Kuhn-Tucker first order condition \begin{gather} \frac{\...
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0answers
34 views

Elasticity of Substitution between 2 factors, without knowing relative prices

I'm trying to figure out the elasticity of substitution between input $s$ and input $v$. I know that the marginal rate of substitution between these two inputs are $\frac{v^2}{s(v+k)}$, where $k$ is ...
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1answer
47 views

Monopsony diagram curves

Why is the marginal cost curve not the same as the supply curve? My personal explanation is that since the marginal cost curve is cost of producing each new product, the supply curve just represents ...
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0answers
22 views

Is WARP the same of consistent choice?

Is there any difference between WARP satisfaction and consistent choice? I'll explain my case better. Assume we have the consumer choosing $x_1=(2,1)$ at prices $p_1 = (1,2)$ and choosing $x_2=(1,2)$ ...
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2answers
254 views

Why can two functions represent the same preferences? [closed]

I wonder why two functions can represent the same preferences?
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1answer
53 views

Monopoly equilibrium with a completely inelastic demand [closed]

What is the impact of an inelastic demand function on a monopoly production and pricing strategy ? Theory states, that a monopoly will strive to maximize its profits, by arriving to a point where the ...
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1answer
237 views

Is this Cost function concave or convex?

Given the following cost function, where t is the quantity of some product. $$C(t) = 1/3t^3 - 7t^2 +11t + 50$$ here is a graph between $t= 0$ and $t = 25$ We are asked if this function is convex or ...
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2answers
58 views

Solving a Cournot Equilibrium, the case of Q=q1+q2, Q(q1,q2)=q1+q2

I am struggling with the differentiating between when to use $ Q=q_1+q_2$ and $Q(q_1,q_2)=q_1+q_2$ For a 2 player cournot game, given $$ P=a-bQ, with \ MC's \ c_1 \neq c_2 $$ I find the ...
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1answer
398 views

Demand Curve Equation Explanation

I've been reading (trying to brush up on my economics knowledge) and came across the equation: $q_D = a + b(P)$. The variable $a$ is explained as "factors other than price affecting demand." I read ...
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2answers
163 views

Continuous function in microeconomics

In the following picture two preference relations are defined - Ist preference relation defines lexicographic relation. Though we know that lexicographic preferences doesn't have utility function. ...
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1answer
107 views

Slutsky Decomposition from Indirect Utility Function [closed]

Given the indirect utility function: V={M^2}/{4P1P2}, how do we establish the Slutsky Decomposition? I used Roy's Identity to get the Demand, but I'm stuck with the other components of the Slutsky ...
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2answers
153 views

Optimal basket and the maximum utility

Given two goods (where more is better), and I am consuming at a point that maximizes my utility (i.e on the budget line, with an indifference curve tangential to the budget line). When the prices of ...
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1answer
145 views

intertemporal utility maximisation

Adam's consumption period 1 and 2 are denoted by $c_1$ and $c_2$ respectively. His utility function is $U(c_1,c_2)=4c_1^{0.5} + c_2$ Ben earns an income of \$3 in period 1 and \$3 in period 2, ...
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1answer
196 views

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
618 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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0answers
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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
24 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
128 views

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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0answers
19 views

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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0answers
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
64 views

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
224 views

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
27 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 ...
3
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1answer
71 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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4answers
301 views

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
96 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
23 views

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
57 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
60 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
106 views

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
55 views

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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6answers
499 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
153 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
49 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
44 views

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
43 views

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
189 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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1answer
49 views

Contribution by each factor

Must admit it has been many years since I have done advanced calculations or anything remotely like it, so please bear with me. I have problem that I hope to get some help with. Say I have below ...
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41 views

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
139 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 ...