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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Educating workers (micro model)

Would someone be able to check my solutions to this basic problem? This is a practice test with no solutions provided, and I have no idea if I am going in the right direction. Problem: https://ibb.co/...
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Formalizing unorganized Sector

This is a fairly basic question. What are the real benefits of formalizing the unorganized sector? What does integrating these into the organized sector achieve other than maybe increased tax revenue ...
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How to find the cost function for perfect complements [closed]

Imagine I got a production function like it : $$ \min\{x_1, x_2\} $$ How can I find the cost function?
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How many Nash equilibria are there in the above game?

5 people are eyewitnesses to a criminal incident. Each one of them wants the police to get informed but they prefer a third person to give the information. Suppose k is one of the 5 people. If the ...
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Set of consumption over all period is convex in $\mathbb{R}^T_+$?

Today in class, the professor said that the set of all consumption $c(S)$ is non-empty, compact and convex subset of $\mathbb{R}^T_+$. i.e. we know $\sum \limits_{t=1} ^T c_t = S$ where $c_t$ is ...
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318 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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Finding Cobb-Douglas Hicksian Demand using Duality

I'm trying to follow the in-text examples from Mas-Colell. I can confirm I have the correct first order-conditions and hence the Marshallian demand functions for Example 3.D.1: $u(x_1,x_2) = x_1^\...
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58 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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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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Effects of change in tax on output

Suppose the government imposes a tax on each unit of output produced of $t. What is the firm’s new profit maximizing level of output? The question suggests the use of comparative to determine how a ...
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How to create an economic model? What are the step for this? [duplicate]

How to create an economic model? What are the step for this? Is it need a real data for this? Or generating a data is acceptable? If possible, I want to know the step by step for creating a ...
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Accounting profit in macroeconomics as compared to microeconomics

In Macroeconomics (2019) on p.103, it is argued that the reason there exists profit in an economy is that most firms own rather than rent capital. Thus: But, Microeconomics assumes a different ...
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Game with an equilibrium in pure, but none in mixed strategies?

I came across the following game: The question is to find potential equilibria in mixed and pure strategies. The solution says that there is an equilibrium in pure strategies (B,N), but none in mixed ...
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Counter example for strong and weak Pareto optimality

We know that strong Pareto efficient is equivalent to weak Pareto efficient if we have continuous and strongly monotone preferences. Please give me an example which we don’t have continuous and ...
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setting of Lagrangian function

Consider a simple consumer's problem: Max $u(X)$ s.t. $\sum_i^l p_i x_i\leq \sum_i^l p_i w_i$ $w$ is initial endowment. We can set the Lagrangian function to solve this problem. $L=u(X)+\lambda ( \...
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Properties on conditional demand correspondence from the textbook of Mas-Colell et al

I have a question on the properties of conditional demand correspondence Let $z(w,q)$ be the conditional factor demand correspondence, i.e. the solution of the cost minimization problem \begin{align} \...
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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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Second welfare theorem and non-continuous preferences

Are there any monotonic and strictly convex preferences that are not continuous but the second welfare theorem does not hold for them?
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808 views

Non-Constant Elasticity of Substitution

What's the literature on Non-Constant elasticities of substitution? Say, I'm interested in the elasticity between $c_1$ and $c_2$ increasing/decreasing in income/wealth. CES utility functions with ...
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173 views

Elasticity of demand

I'm reading a paper from Pindyck (1988) where $$P_t=X_t-\gamma Q_t.$$ $P_t$ is the price, $X_t$ is the demand state variable, $Q_t$ production and $\gamma\geq0$ is apparently the ''(constant) demand ...
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What do game theorists think of behavioural economics?

Though behavioural economics has been popularized over the past decade in both industry and pop culture, it seems that not much has changed with regard to the standard economic definition of ...
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Why would microeconomics be considered more “objective” than macroeconomics?

I can imagine the following reasons for this: conflation of positive vs normative economics in macro micro phenomenon is less complex (or smaller): thus easier to create reliable models for Thanks
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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
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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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What is the returns to scale of the production function q = min {K, L^(1/2)}?

I learned that when there is decreasing returns to scale, the average cost is always increasing. But the professor told us today that the other way around might not always be true. So if average cost ...
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1answer
107 views

Dead Weight Loss (Tax)

Problem Given demand $D(p)=A-ap$, and $A,a>0$ and a fixed price $0<p_1<A/a$ by some company. My solution so far CS is $CS=\int_{p}^{A/a}D(p)dp=\int_{p}^{A/a}(A-ap)dp=\frac{1}{2a}(A-ap)^2=\...
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Seminal papers that later were proven to contain errors

I was reading on institutions, and I came across Acemoglu, Johnson and Robinson (AJR) paper on The Colonial Origins of comparative development: An Empirical Investigation, and this paper seemed so '...
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Indifference between 2 risky asset

Consider the problem of an individual that must choose how much of his initial wealth w0 > 0 to allocate to a risky asset X. The risky asset X has n ≥ 2 possible return rates, namely r1, . . . , rn,...
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What does “r” represent in the total cost function?

I know that the total cost function of a firm in the short run is: TC = wL + rK, where rK is essentially a constant. I understand the variables w, L and K, but I still don't get what r is. I mean, ...
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What is the difference between Common Goods and Common Pool Resources?

All this time I was thinking that common-pool resources are common goods, until I read this excerpt from a book.
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Why is imputed rental income for owner-occupied housing included in the measurement of household income?

In the National Income Dynamics Study in South Africa, total household income is measured by totalling labour income, government income, investment income, capital income, agricultural income, ...
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1answer
29 views

Profit-maximization for a monopoly

Between two countries, Richland and Poorland, with a strict ban on cross-border sales agreed with the Poorlandian government. The respective demand functions for both countries are: $Q_{poor} = 10 - ...
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How can costs curves shift in the short-run?

I have been researching about Orsted economies of scale strategy and I am trying to argue that due to acquisitions and aliances, the costs curves of a firm may shift in the short-run, consequently ...
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Microeconomics question

I'm given this question. I'm not sure if I'm doing it right. Can any one help? ...
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Price equilibria with transfers

I am pretty new to Microeconomics so please bear with me if I am missing something obvious. I am solving the following problem: The question is in the setting of pure exchange economy with two ...
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1answer
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Correct and complete characterisation of the Walrasian demand function

I would like to propose to you the following problem and my proposed solution. In particular, I am unsure in how to correctly characterize the Walrasian demand. Can you please have a look at it and ...
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Boundary solutions in the Utility Maximization Problem

I'm trying to find boundary solutions for the following utility maximization problem, but i'm unsure on how to proceed. Here is the problem and what I got so far: $ \max x_1^\alpha + x_2 \qquad \text{...
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113 views

Generalizing demand for perfect substitutes utility function

I have the utility function: $U(x_1,...,x_n)=a_0+\sum_{i=1}^{n}a_ix_i\;\;\;\;\;\;\;\;\;a_j\in\mathbb{R}_+ \;\;\forall j=\{0,...,n\}$ (maybe $a_0$ could be zero) $\sum_{i=1}^{n}a_i\in (0,K)\;\;\;$ ...
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Types of Economies of Scale

Context: Delegation informed prime Minister that textile sector is working at fullest capacity due to government policies. They further said the energy package, timely refunds and other facilities had ...
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How to explain the flattening of the SRAC curve?

I discovered that there is a way that Short-run average cost curve could become 'flatter' instead of shifting. Yet I cannot find an explanation of why and how it can become flatter. For example, in ...
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Can a horizontal merger in a highly concentrated market be beneficial to consumers if the cost synergy of the 2 merging firms is large enough?

There are three firms in a market and they compete in quantities ( a la Cournot).Two of the three firms merge (horizontal merger). The two merging firms will be able to reduce marginal costs ...
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Why is the opportunity cost 0 in this case?

My book says that the opportunity cost of purchase of a specialized equipment that has no alternative use is zero and hence such an expenditure is a sunk cost. However, while calculating the user cost ...
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1answer
108 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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Complicated utility function

I am trying to answer this past paper question on microeconomics and a rather complicated utility function question. The question is below as well as my answer. In my answer, I use the fact that the ...
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1answer
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Calculating Consumer Surplus Given Table

Can someone help me? The answer is supposed to be 36 but I have no idea how they got that answer. Can someone explain why consumer surplus is 36 in this instance? Thanks! Refer to Table below. If the ...
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Perfect substitutes and Lagrange

How does one solve utility maximization of perfect substitutes using Lagrangian function? Consider the problem $$\max_{x,y} ax +by $$ subject to the constraint that $$px + qy \leq I$$ where $a,b,p,q,...
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Finding the conditional input demand function

Find the conditional input demand function and cost function for the given production function $$f(a,b,c,d)=\min\{ a,2b\} + \max\{3c,4d\} $$ In The solution, The production function is defined as $f(x,...
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Overlaping jurisdictions model, Alesina Spolaore: Proof of Lemma 1; The Size of Nations

I've been reading the book 'The Size of Nations' by Alberto Alesina and Enrico Spolaore (can be found on the net if you know where to look) and I'm having trouble following their "proof" of ...
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which type of goods maximum utility function represent?

I am not sure, which type of goods does the maximum utility function represent i.e., $U(X_1, X_2) =\max(X_1, X_2)$. As the $U(X_1, X_2) =\min(X_1, X_2)$ represent the complementary goods, and $U(X_1, ...
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Differentiated or uniform tax

Suppose Person 1 is working in Denmark and has the utility function, $$u(c,l)=c-\frac{\eta}{\eta+1}(24-l)^{\frac{\eta+1}{\eta}}$$ His wage after tax is $w(1-t)$, where tax, t, $0<t<1$. A second ...

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