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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1answer
35 views

Contract curve and Pareto frontier

Consider an exchange economy with two agents. Each agent $i \in \{1,2\}$ derives utility $u^i(x_1,x_2) \in \mathbb R$ by consuming $(x_1,x_2) \in \mathbb R_+^2$. Let $u_j^i(x_1,x_2) = \partial u^i(...
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Difference between Giffen and inferior goods. Why aren't all inferior goods Giffen goods?

What is the difference between an inferior good and a Giffen good? Are the two following definitions for an inferior good equivalent? Def 1: An inferior good is a good for which the demand decreases ...
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2answers
39 views

Mathematic notation of scale returns

I'm having trouble with returns to scale mathematical notation which i found counterintuitive even I'm fine with its definition. Any help will be very appreciated. There are three possible types of ...
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1answer
23 views

Fixed costs in the long run

Can anyone please help me understand how fixed costs in the long run are zero? In Microeconomics by J. M. Perloff, the author gives the example of a factory's rent and says that if we are talking ...
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1answer
14 views

How to derive substitution and income effect using Slutsky equation if we don't know which of the prices change?

We have the utility function $$U(x,y)=x + y$$ and we have to derive the substitution and income effects using Slutsky equation. But after I derive the Hicksian demand functions for e.g. x: $$h_x= \...
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0answers
25 views

On shapes of indifference curves

I encountered this question in Microeconomics by Pindyck and Rubinfeld. The question says that "Suppose Jones and Smith have each decided to allocate $1000 per year to an entertainment budget in the ...
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1answer
20 views

Budget Constraint in Utility Maximisation Problem with Lagrange Multipliers

Lets say we have a utility function $U: \mathbb{R}^{2} \to \mathbb{R}$ given by $U(x,y)$ and a binding budget constraint $p_{x} x + p_{y} y = m$, where $p_{x}, p_{y}$ are prices of goods $x,y$ and $m$ ...
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1answer
26 views

In a production function, the technology can vary across the firms and times. But the “power” must be same for the same industry?

Let $F_t=A_tK_t^\alpha L_t^{1-\alpha}$ be the production function with two parameters. In regression, we know the firm level $F_t$, $K_t$, and $L_t$. We want to estimate $A_t$ and $\alpha$. I've ...
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1answer
25 views

For the case of two goods, give an example of preferences that are represnted by a continuous utility function that allows for fat indifference curves

The question in the title sounds like a trick question, due to the monotonicity property that indifference curves have, such that for two goods x and y, strong monotonicity implies y > x. Possible ...
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1answer
16 views

In the Cournot Duopoly Model,why is the Equilibrium achieved at 1/3 Rd of the Market Share?

I've been reading it for a while,while I do get the action reaction movements,I can't understand as to how the 1/3rd value was reached. Can anyone intuitively or mathematically explain as to how it's ...
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1answer
58 views

Multiple Forgone Job Opportunities and Economic Profit

I'm told that forgone job opportunities are implicit costs, to be included in calculating economic profit, but I can't seem to see how I could list and consider many different forgone opportunities. ...
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2answers
109 views

How can an outcome be Pareto efficient but not Kaldor-Hicks efficient?

An policy is a Pareto improvement if it makes some people better off and no one worse off. And a policy is a Kaldor-Hicks improvement if it can be turned into a Pareto improvement by redistributing ...
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1answer
19 views

Optimizing Lagrangian Function Subject to 4 Input/Output Constraints:

The objective function: $$\text{utility}=U\left(x_{c}, y_{c}\right)$$ subject to, $x_{o}=f\left(y_{i}\right)$ $y_{o}=g\left(x_{i}, x_{o}\right)$ $x_{c}+x_{i}=x_{o}+x^{*}$ $y_{c}+y_{i}=y_{o}+y^{*}$ ...
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1answer
69 views

Job search theory in discrete time

Let us assume that there is a labor who lives in discrete time universe and discounts future payoffs with the discount factor $b\in (0,1)$. And we assume that this labor is at period $t=0$ at first. ...
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8answers
14k views

Why does quantity supplied increase with price in economics?

The Law of Supply is my worst enemy in economics because I could never truly understand it, and as a result, the stuff I learned after that was built on a weak foundation. The Law of Demand is totally ...
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Can I use the released data on AER and JPE in my own research without permission?

I don't think JPE has suggested a specific license. However, the journal did say that the data policy is adopted from American Economic Review (AER). AER did suggest a license of Creative Commons ...
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2answers
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NPV but adding last year net value?

I have found the following NPV (Net Present Value) formula: CF = unlevered cashflow i = interest rate (WACC) $$NPV = -I_0 + \frac {CF_{2019}}{(1+i)} + \frac {CF_{2020}}{(1+i)^{2}} +\frac {CF_{2021}}...
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1answer
68 views

Intertemporal choice with possibility of death

Here is the setup: Suppose that there is an individual who lives up to two periods. He lives with absolute certainty during period $1$, and during this period his sub-utility function is given by: $$...
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2answers
57 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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1answer
31 views

Reason behind the decomposition of price effect into substitution and income effects

I was studying the decomposition of price effect into substitution and income effects. I am finding it a bit complicated. This is what I have understood: (0) Let us assume that there are two ...
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1answer
39 views

Market impact function

I have the following Dynamical system for market impact function $$p_{t+1}-p_t=a(d_t-s_t)$$ $$s_{t+1}-s_t=bp_ts_t-cs_t$$ $$d_t=y-rp_t$$ where $s_t$ is quantity supplied, $d_t$ is quantity demanded, ...
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Risk aversion problem where the first derivative of utility function is negative [closed]

In this problem, the utility function's first derivative is negative and 2nd derivative is positive. I don't know how to answer. Please help! I know the answer of (b). I need help with (a) only.
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1answer
26 views

If the marginal cost is equal to 1, how does that imply marginal cost is equal to marginal benefit?

The function below is a utility function simplified after subject to an implied participation constraint. $$ E\left(\pi_{n}\right)=e^{*}-E\left(s^{*}\right)=e^{*}-c\left(e^{*}\right) $$ where $ \pi_n ...
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2answers
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Is there no equivalent exchange? [closed]

There is no equivalent exchange. I think it doesn't exist. The so-called equivalent exchange is imaginary. In exchange, one side always makes money while the other side loses money. For example, if ...
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1answer
57 views

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
130 views

Calculate optimal discount for product bundling

So recently I made some rules with my transaction data. Based on it I can determine which products are profitable to bundle it together. But even though I know e.g. product A→ product B, are there ...
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1answer
30 views

What data/factors/attributes do the professionals monitor in a top-down analysis on the macroeconomics?

I am learning to do top-down analysis on a number of sectors in the US equity markets. I have never done it before and I would appreciate it if some professionals can share their experiences with me. ...
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1answer
41 views

How do I use a monopsony (product market) graph to show that a firm has more buying power over a supplier?

For instance, Tesco has more buying power over British farmers. How would I show this on a monopsony graph where Tesco has a surplus?
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1answer
3k views

Block pricing vs Perfect price discrimination

I have just learned about Perfect price discrimination and block pricing. And I was wondering, in the case of these two graphs Block pricing & Perfect price discrimination. Why, in case of the ...
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14 views

How to find the total effect of a price change on the quantity demanded?

I'm computing how the quantity demanded changes after the price change. The task is to maximize $$U(F,G) = F^{1/3}G^{2/3} s.t. 1F+ 2G = 90$$ I get $$F=G=U=30$$ But then prices drop for 0.5 each ...
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1answer
88 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
93 views

Does Preference have a Hierarchy? A Silly Question

I have what is probably a very silly question, but I have gone down the rabbit hole and can’t get back out..... Is there is a hierarchy of preference, and within each level of choice do we reset the ...
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1answer
34 views

How to calculate CRRA bounds from Holt and Laury (2002) type lottery?

Lottery is between: Option A: a certain choice of £5 Option B: £10 with probability 0.1 and £1 with probability 0.9 The probability of receiving £10 increases in each subsequent choice. How do I ...
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0answers
38 views

Which is a better intermediate micro textbook: Perloff (with calculus) or baby Varian (with calculus)?

I’m currently learning intermediate microeconomics with calculus. I know to take derivatives, partial derivatives, integrals, and multiple integrals, and I know some basic linear algebra (solving ...
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2answers
30 views

Does quantity demanded refer to all consumers or individual consumers?

When looking at points along the demand curve, is each quantity corresponding with each point referring to the total quantity demanded by all consumers in a market or the quantity demanded by ...
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1answer
51 views

Categorical variable as explanatory variable (right hand side)

In a linear probability model, or any sort of regression, one can use fixed effect estimation by simply adding in a STATA code i.something. This "something" can be either a village, a county or a ...
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0answers
23 views

How to prove monotonic transformation of the function and equivalence?

At the microeconomics course I have to prove monotonic transformation of the function U(x,y) = A(x^a)(y^b) into U(x,y) = (x^0.5)(y^0.5) Since the MRS are ay/bx and x/y resp. I can obviously only ...
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1answer
98 views

General Equilibrium Involving Production

I need a little conceptual clarification. For a standard $N*K*M$ general equilibrium model, would an allocation, say, $y^k$ be Pareto Optimal if it does not solve $max(py^k)$? I understand that the ...
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1answer
21 views

Population growth and household income

I heard a real estate agent say “as a city’s population increases so will the household income.” He went on and gave an example of how a city had a population growth of 20% and a household income ...
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2answers
156 views

Help trying to find Economic Profit for a Monopoly

I'm given a demand function ( $p = 60-.002q$), Marginal Cost (\$10) and Fixed Costs (\$300,000) for a monopoly. I've figured the profit maximizing output and price: Marginal revenue function $MR = ...
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2answers
62 views

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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3answers
234 views

Why does $\frac{MP_L}{MP_K} = \frac{w}{r}$?

I did a practice problem set. I was given a production function $F(K,L)$ and had to derive the firm's cost function. To do this, I used the following relationship: \begin{equation} \frac{MP_L}{MP_K}=...
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1answer
37 views

Could anyone here be able to explain gambling addiction and its debt with Microeconomics theory?

I am a research master student in Cognitive and Clinical Neuroscience, with the specialization/track Neuroeconomics and have to come up with a master thesis subject soon. I was thinking about gambling ...
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1answer
774 views

Intertemporal consumption question

This question is driving me nuts. Suppose, an individual lives for two periods. In each period she consumes only one good,which is rice. In period 2, she can costlessly produce 1 unit of rice, but ...
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2answers
90 views

How to estimate loss of customers due to customer support inefficiency?

I have a data about customers and their activity on a website for a two-year period. Also, I have a customer support work evaluation data for a shorter period of that two-year period. The question is: ...
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1answer
49 views

Short Run Total Cost function Question

I am confused about the Short Run Total Cost function of this problem. If the firm's production function is $F(K,L) = K+\ln(L)$ derive the short run total cost function. I was able to solve the ...
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1answer
63 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
1k views

Why is marginal cost not the cost of producing the last unit?

I am slightly confused about this wikipedia article. en.wikipedia.org/wiki/Marginal_cost It states that marginal cost is not the cost of producing the next or last unit. Why is this the case? I ...
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1answer
129 views

Can $u(x) = \sqrt{x_1 x_2} + \sqrt{x_3 x_4}$ be solved by Kuhn–Tucker conditions?

Consider $\max_{x_1, x_2, x_3, x_4} u(x) = \sqrt{x_1 x_2} + \sqrt{x_3 x_4}$ s.t. $\; p_1x_1 + p_2x_2 + p_3x_3 + p_4x_4 \le w$ I know we can solve the max problem through separately considering ...
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1answer
249 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'...