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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35 views

How to derive Hicksian demand?

How can I derive Hicksian demand, when from the FOC I only get $\frac{p_x}{p_y} = \frac13$ without the usual x & y. So they cannot be derived directly from FOC, but if I plug the price relation ...
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235 views

eBay economics - total revenue impact from expanding ecosystem by 1 seller

While I think my question is straight forward, I'm guessing the answer to it is anything but. Thanks in advance for any insight you may be able to offer, even if it's just a directional assist. Here'...
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123 views

Kyle Models - Information Asymmetry - Certainty Equivalent

I will try to re-state my problem: We assume that there exist three types of investors in the market who are indexed by $j=\{i,u,m\}$, where $i$ stands for the informed, $u$ stands for the uninformed ...
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1answer
38 views

Bayesian Nash Equilibria: Strong and Weak Types

I need a little help with the question. I understand that since both players have two types each, there will be 4 different payoff matrices to be considered, $(S,S)$,$(S,W)$,$(W,S)$,$(W,W)$, each type ...
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20 views

Derivation of aggregate demand function for Monopolistic Competition (based on Combes et. al, 2008)

A specialized question for those, who excel in monopolistic competition and modern trade theories. I am interested in a derivation of an aggregate demand function for a model of monopolistic ...
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What changes do I, as an individual, experience during a recession?

There is a lot of talk about how we're approaching an economic recession. There is plenty of talk about how that would affect the world at large, but I haven't really found much on the level of ...
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the question focuses on slutskys equaiton

.51 Consider the utility function, u(x1, x2) = (x1)1/2 + (x2)1/2. (a) Compute the demand functions, xi(p1, p2, y), i = 1, 2. (b) Compute the substitution term in the Slutsky equation for the effects ...
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Difficulty Understanding CPI (Consumer Price Index)

Here's a question about CPI in my microeconomics text (Pindyck), which I don't seem to understand: The price of computers has fallen substantially over the past two decades. Use this drop in price ...
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1answer
34 views

Trembling hand perfection and weakly dominated strategies

It is well known that players cannot use weakly dominated strategies in a trembling hand perfect equilibrium. My question, however, is a little different: does iterated deletion of weakly dominated ...
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14 views

Is expensive private school a rational investment?

In Australia, successive conservative Federal governments have increased the share of public funding for non-government schools, and for the top schools the amounts of annual funding are many millions ...
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1answer
80 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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2answers
134 views

Why would minimum rent under franchise arrangements for McDonald's decrease year by year?

I am working on a project regarding the refranchising strategy of McDonald's and came across this piece of data in their 2014 annual report. My understanding of minimum rent is that its a fixed amount ...
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How to represent game in Bayes normal form? [on hold]

[ I don't seem to get right the representation of the game in bayes normal form.
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1answer
33 views

Opportunity Cost effect on benefits

My question is the following: Let's say a person has two career choices. He would be succesful in both, but in one of them he is slightly better and thus he will do better. So let's say career A will ...
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1answer
256 views

Perfect Bayesian Equilibria

What are the perfect Bayesian equilibria in the following game? The part that is confusing me is the right-hand side, where player 2 is of type N. Thanks! EDIT: My workings out so far are given ...
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Savings as far as an individual is concerned [closed]

If I have a savings of 1 million usd at an age of 46. Is it enough if the returns are at 6.5-7% on a conservative side. I have 2-3 houses in my home country and have bought a flat abroad . I have a ...
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utility maximization with nested Cobb–Douglas–CES preferences

I'm trying to understand the following paper: Hsieh & Ossa: A global view of productivity growth in China (2016). The pdf can be found here: https://faculty.chicagobooth.edu/chang-tai.hsieh/...
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28 views

Moral hazard, bubbles, and economies of scale in limited companies and organizations

http://eprints.lse.ac.uk/100058/1/Goodhart_CEPR_DP13494.pdf What would be the disadvantage of limiting the liability to the product of the proportion of the company and the debt(a person with 2% of a ...
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Is a proft tax not distorting unless we know the opportunity cost?

A Profit tax where we actually know the Entire Cost Function Including the Opportunity cost(Time, Incommodation, best alternative for the easily monetized resources etc) is not distorting. But the ...
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1answer
262 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
23 views

The notation cl co (A)

I stumbled upon this notation, (cl co(A+C), while reading "Set Optimization—A Rather Short Introduction" by Andreas H. Hamel, Frank Heyde, Andreas Löhne, Birgit Rudloff and Carola Schrage. Is it ...
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2answers
265 views

Cobb-Douglas production function with expenditures rather than units

I want to estimate a standard Cobb-Douglas production function of the form $ Y=AK^{\alpha}L^{\beta}$. However, I only have data on labour expenditures, not units of labour. I don't have data on the ...
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1answer
64 views

What is the difference between solving for utility maximization separately or aggregately?

I derived the Walrasian equilibrium for an economy of two consumers with their respective utility functions (u1, u2) and initial endowments but later on I am asked to maximize (u1+u2). Does anyone ...
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1answer
28 views

Quantity theory of money: microfoundations

The quantity theory of money states the price level is proportional to the amount of money in circulation. That is, if the quantity of money increases by some factor $k$, the price level will increase ...
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Gorman Polar Functional Form . Question

The Stone-Geary expenditure function you derived in part (a) of the preceding exercise is a special case of the Gorman polar form: e(p, u) = a(p) + ub(p), where a(p) and b(p) are both linear ...
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1answer
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What is the graphic intuition behind Marginal rate of subsitution

So I think I understand the math, but I don't understand the intuition on a 3d graph. Why does the ratio of partial derivatives give us a tangent line on a level curve(indifference curve)? My ...
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1answer
132 views

Do you get economies of scope from horizontal or vertical integration?

Economies of scope: make it cheaper to produce a range of products together than produce each one on its own as company can share inputs (e.g marketing and finance) removing cost redundancy Would ...
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1answer
226 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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1answer
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finding optimal values of quantities through utility function when MRS is 1 and price ratio is 1:2 [on hold]

so this is a somewhat simple question but im stumped, here's why: given the utility U=2$X_1$+2$X_2$ where $P_1$$X_1$+$P_2$$X_2$=20 and $P_1$=0.5$P_2$ the question asks to find optimal values of $...
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Reservation utility in moral hazard theory [closed]

I was wondering how to compute reservation utility in this example of insurance theory. My understanding is that reservation utility considers the case without insurance. utility function is $U(w) = \...
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3answers
2k views

Total cost function and (dis)economies of scale

I'm really confused about how I'd tackle this. I have an equation, $TC(Q) = 100Q + 20Q^2 + 3Q^3$. And I'm trying to find where the economies of scale, diseconomies of scale and constant return to ...
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If the government introduces import quota will prices change for imported goods

I am currently going through an introductory course to microeconomics. We are discussing how government interventions result in inefficiencies and dead-weight losses. One of the questions in concern ...
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Cobb Douglas, Budget Line, Demand function question

use the general form of the Cobb Douglas utility function $U(x,y)= (x^a)(y^b)$ and the budget constraint in the form $B=p_{x}X + p_{y}Y$ to find the demand functions for good x and good y. Is this ...
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two monopolies two markets [on hold]

There is two similar monopolies and two similar markets, each monopoly stray from its market pays extra cost for producing in the other market, i understand that each monopoly will not stray and keep ...
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1answer
36 views

Can a monopoly supply negative units to one of its 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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Perfect Substitution with a Continuum of goods?

Imagine I have a continuum of different goods indexed by $\omega \in [0,1]$. I have a household which consumes a quantity $C(\omega)$ of good $\omega$, and pays a price $P(\omega)$. The household has ...
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1answer
42 views

Representing preference orderings over a finite set of outcomes by two payoffs

I have read the following statement and I am having difficulty understanding the second part: Any set of preference orderings over a finite set of outcomes can be represented either by ...
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32 views

Calculating equilibrium in a cobb-douglas long run, perfect competition scenario

Supposed there are a fixed number of 1000 identical firms in a PC industry, with each producing the same fraction with the same production function $$q_{i} = \sqrt{K \cdot L}$$ And market demand is ...
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1answer
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Production technology of $y=2x$

I have a given product $y$ that is produced by the input $x$ in the following relation: $2x=y$. In our example, we are given the unit price of $x$ is $16$. Find the unit cost of $y$. The answer is $8$....
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1answer
60 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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1answer
43 views

Mathematical framework for modelling the relationship between price and sales of a product

In my job as a data scientist, I am required to model the relationship between the price of a product and the sales or number of unit sold. I am trying to build a simplistic model, the assumptions of ...
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2answers
42 views

How to deal with misspecification of models in Macroeconomics?

I'm wondering what methods are used in economics, specially in macro, to deal with model misspecification. I've already searched the web, but I may be missing some methods. Therefore, I ask you for ...
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1answer
21 views

Market Clearing with Dividend and Investment

In pure exchange GE models, a typical goods market clearing condition for good $n$ looks like: $$\sum\limits_{i=1}^Ic_n^i=\sum\limits_{i=1}^Ie_n^i.$$ Consider a model with production where firms can ...
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1answer
56 views

Direct revelation mechanism's sets of strategies and types

Mas-Colell, Whinston and Green in Microeconomic Theory describe the direct revelation mechanism as it follows: The employed notation is the following: $θ_i$: Player i's type $Θ_i$: Set of types for ...
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223 views

If the (direct) utility is concave in all goods, is the indirect utility necessarily concave in wealth?

Suppose that the direct utility $u(x_1,...,x_n)$ is concave in each of its arguments. Does this imply that the indirect utility $U(w,p)$ is concave with respect to $w$? If all goods are normal than ...
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Are marginal utilities or utilities compared?

Consider decision making in an economic model. Suppose that there is some utility and it is a function of consumption and leisure where leisure is full-time work, part-time work, or full-time ...
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1answer
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Difference between social choice function and mechanism outcome function

Mas-Colell, Whinston and Green's Microeconomic Theory (3rd edition) defines the social choice function as the following: Later, the mechanism outcome function is also defined: The relationship ...
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1answer
48 views

How does expected utility theory treat losses?

I've been reading about prospect theory lately and have read often that prospect theory predicts people will be risk averse in gains and risk seeking in losses. This statement is typically ...
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28 views

Index of an Excess Demand Vector

Mas-Colell, Whinston and Green, in Microeconomic Theory (third edition), postulate the concept of an index for an excess demand vector, which is later used in the Index Theorem: A regular equilibrium ...
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What is the trade-off between? Consumption and Leisure or Income and Leisure?

When first presenting the utility function and its arguments, textbooks typically start by stating that utility is a function of consumption and leisure. See for example https://sites.hks.harvard.edu/...