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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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8 views

Refinements in signaling games with three sender types

What are the pros and cons of the Intuitive Criterion and the Criterion of Divinity in signaling games with three types? I find that separating equilibria often survive the intuitive criterion, ...
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Micro and macro readings

Can you give me good readings for micro and macro theory for undergraduates? I would like ones that would cover a lot of math.
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Inforamtion asymmetry modeling

Is there any cook book, in finance, for models in information asymmetry, so as to make some practice?
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1answer
38 views

MWG Proposition 2.F.1

Is homogeneity of degree zero necessary in proposition 2.F.1? It seems like the proof does not assume homogeneity of degree zero to establish the proposition. If this is true, it seems that ...
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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
27 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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27 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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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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23 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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27 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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26 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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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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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
72 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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42 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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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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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
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
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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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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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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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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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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
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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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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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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20 views

What does the elasticity say about the fraction of total cost used on input 1?

A firm have the following production function $$ y=x_{1}^{\alpha} x_{2}^{1-\alpha}, \quad 0< \alpha < 1 $$ $w_1>0$ is the cost of input 1 and $w_2 > 0$ is the cost of input 2. (1.1) ...
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1answer
91 views

Why are indifference curves (often) of infinite length?

Indifference curves are often of infinite length. Is this implied by monotonicity or non-satiation? If not, what is/are some condition(s) that are sufficient for indifference curves to have infinite ...
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Efficiency-related reason for net social benefits from income taxation

Found a question that I cannot really find an answer to. I am being asked to consider an economy with many households and assume that the government can only generate revenue by taxing households' ...
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1answer
65 views

How do we define an efficient tax in microeconomics?

I am currently working through problems to study for an upcoming exam. I am not seeking a solution per se. I am looking at the intertemporal choice model. I am looking at two periods where consumption ...
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1answer
42 views

What determines rent prices of houses? Does it depend only on interest rates?

My hypothesis: the renting is determined by the opportunity cost of selling the house and gaining interests in a bank or some investment company. That is, instead of renting, sell it, put the money in ...
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4answers
61 views

What is the difference between microeconomics money and macroeconomics money?

In microeconomics, \$USD are a store of value. I can sell a candy bar for \$1, and I can hang onto that \$1 for a year and then buy the same candy bar for that same \$1. If I print \$1 (and get away ...
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Question about MWG 17.D.1

I tried to solve by myself the exercises of MWG(Mas Colell). However, I think the exercise has an error at 17.D.1. The 17.D.1 asks us that "verify that there are multiple equilibria". However, The ...
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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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Determine if goods are substitutes or Complements based on demand function

So I have a consumer with a utility function of the Cobb-Douglas form $v(x_1,x_2)=x^{\frac{1}{2}}_1x^{\frac{1}{2}}_2$. From that I constructed the demand function for good 1 and good 2: $x_1=\frac{1}{...
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Market mechanism design and decision rule based on a graph

I am doing a micro course right now. I came upon this question while studying and I was hoping for help/hints on how to solve it or what resources to consult to better understand the topic. the ...
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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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utility from providing public good as explained in Hindriks textbook

I think I understood the highlighted part: basically, by increasing $g^1$ my utility increases because more public good is being provided but at the same time it decreases because I have less money to ...
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1answer
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Does more variable input cause marginal product to decline?

Previously, I believed that after a certain point, additional variable input results in a decline in productivity. For example, if you hire too many waiters, they will eventually get in the way of ...
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2answers
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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
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Why does marginal cost slope upwards after the minimum point?

My textbook writes this on marginal cost: "The law of diminishing returns refers to the idea that as more of a factor (input) is used, with at least one fixed factor, there is some point at which the ...
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1answer
27 views

REE with asymmetric information and Bayesian Nash equilibrium?

What is the difference between a Rational Expectations Equilibrium (REE) with asymmetric information and Bayesian Nash Equilibrium (BNE)? Since agents in both cases play some game or have a strategic ...
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Second welfare theorem problem

I would like to get a better understanding of part c of the following problem. It appears to me that Walrasian allocations do not change but I want to confirm whether I am right or not. Thanks. ...
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Existence of market sharing equilibrium in hotelling model

I'm reading a paper on Competition in Two-Sided Markets. The model is a Hotelling-type model, with consumers on some interval, choosing their preferred firm based on price and 'distance' to the ...
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weakly preferred consumer bundles

I am currently studying consumer choice and saw that weak preference refers to when an individual prefers or is indifferent to two bundles (such as bundle A and bundle B). I was wondering what is ...
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What happens to consumer surplus and profits as firms get more information in Hotelling's duopoly model?

In the Duopoly on the line [0,1] with customers uniformly distributed, with firm A on the 0 side and firm B on 1's side, we know that if the firms have no information about the customer, there will be ...
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22 views

Certainty equivalent and risk premium

I'd like some guidance on the below practice question on uncertainty in consumer theory. I think I am confused on the certainty equivalent & risk premium or I'm not understanding the question. ...
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1answer
27 views

Does the term 'marginal' refer to the last consumer?

I was reading this answer on this website which talked about how MB = P at allocative efficiency. "Why does allocative efficiency occur when P=MC rather than MB=MC" In this answer, it is stated that ...
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Who is the first one to equate “rational” with “complete and transitive”?

MWG taught that, suppose that the menu is finite, "rational" is the same as "complete and transitive". But it seems that it does not cite any sources. Who said this first? vNM said in 1944 that their ...
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Who is the first person/paper to introduce “mixed strategy”?

Who is the first person/paper to introduce "mixed strategy"? The PNAS by Nash used this notion without citing anyone. Does the earlier book: Von Neumann, J., and Morgenstern, O., The Theory of Games ...