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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What factor to use with Salvage Value in rate of return questions?

I am trying to solve a rate of return question from the book Engineering Economics by R. Paneerselvam. In that particular problem I am given a salvage value along with other factors. following are the ...
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1answer
34 views

Why is elasticity not constant on a straight line graph?

There are different zones of elasticity on a graph, but if we are to imagine a negatively sloped, straight line on a price v quantity graph, we find that elasticity differs based on where we look on ...
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Is it possible to give, in economics, an example of a relation ( set of ordered pairs) that is not a function?

In mathematics, some relations ( sets of ordered pairs) are not functions. I know economists make use of functions. But do they also consider relations that are not functions. In which branch of ...
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is there a difference between E[e|x]=0 and E[e|d=1]-E[e|d=0] in continuous vs discrete case in regressions?

in the discrete case, if assignemt is random, then i can express E[y|d=1]-E[y|d=0] = B + E[e|d=1]-E[e|d=0], where the expectation of the errors are the same for both groups and become zero. Where I am ...
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1answer
34 views

Proof: Risk averse; Certainty Equivalent smaller than expected value

I would like to show for a randomly distributed variable $x$ with CDF $F(\cdot)$ , given a Bernoulli utility function $u(x)$ the following property holds: The certainty equivalent, $CE(\cdot)$, is ...
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1answer
63 views

Is there a proof for composite commodity theorem?

I have been reading Economics and Consumer Behavior by Angus Deaton and John Muellbauer, specifically reading up on Composite Commodity Theorem, which states: if prices move in parallel to each ...
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1answer
464 views

Recent economics theories that involve differential topology?

The original development of general equilibrium theories involved differential topology. I wonder if there are any recently developed theories, in any field of economic theories, that utilize ...
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2answers
88 views

By what means do prices change?

The classical supply and demand theory states that prices and quantities of a given good (in a perfectly competitive market) are determined by the supply and demand of that good, a shift in the demand ...
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How do Pension Fund capital flows operate?

I'm trying to figure out a method for calculating the impact to markets of outflows from pension plans. More specifically, if we imagine a theoretical huge and underfunded pension plan that is ...
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4answers
4k views

How can power/electricity prices be negative?

Bloomberg shows this chart: I understand the above chart to mean that consumers were actually paid to use electricity. (Please correct me if I'm mistaken.) I was wondering how this is possible? How ...
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1answer
23 views

Free Disposal: the production set less the vector space of positive reals

In Microeconomic Theory (3rd Edition), Mas-Collel, Whinston and Green state that the property of free disposal implies the following: $Y - \mathbb{R}^L_+ \subset Y $ Y: Production set y: Production ...
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66 views

Why are Hicksian demand curves unobservable

I have read this paragraph in a book (Jehle, Reny: Advanced Microeconomic Theory): I don't quite understand why Hicksian demand curves aren't directly observable? What does observable stand for in ...
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3answers
105 views

Perfectly competitive firms. Economies of scale

My textbook says the following: "Perfectly competitive markets only achieve productive efficiency if you assume that there are no economies of scale in the industry." Why is this the case? And by "...
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1answer
46 views

Sequential game equilibrium strategy question

The question asks for player B's equilibrium strategy, hence shouldn't player B choose the strategy that gives the highest payoff after player A's move? Why does player B choose 4 over 5 and 6 over 8 ...
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1answer
38 views

Asymmetric (in sign) cross-price derivatives in consumer-theory problem

I'm puzzled why, in the following optimal-choice problem, good $x$ depends on price $p_y$ but the opposite is not true. Should not the sign of $\frac{\partial x}{\partial p_y}$ be the same of $\frac{\...
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139 views

Preference: Convexity and Monotonicity

I need an example of a Convex, non-monotonic preference Non-convex, monotonic preference I figured that an example of non-convex, monotonic utility preference could be $U(x,y)=x^2+y^2$. For convex, ...
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1answer
40 views

Industrial Economics

I am currently struggling trying to find the short-run equilibrium price, output per firm, and profit per firm if $190$ firms supply the market. I am given $p=102-1/2Q$ and $C(q)=5q-6q^2+3q^3$. ...
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1answer
48 views

What are the economics of bike sharing companies?

Bike sharing seems to have originated in China. And it has spread to the UK. And at least a decade on it continues to spread into the provinces. So it has longevity. So what are the economics of ...
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2answers
118 views

What is the Walras law vs first welfare theorem

As far as I know, both of the first welfare theorem and the Walras law are closely tied to the invisible hand. what is the difference between them? thank you very much for your help
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Minimum observations for an econometric SEM

Good day for all: I have an econometric SEM with three equations similar to: $$ A = \beta_0 + \beta_1 B + \beta_2 G + \beta_3 H + u_1 \\ B = \beta_4 + \beta_5 C_{-1} + \beta_6 D_{-1} + \beta_7 E_{-1}...
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Transformation Function

In Mas-Colell microeconomics textbook I have found that profit maximization problem (as well as many further optimization tasks) could be represented with application of some transformation function (...
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1answer
27 views

Fehr & Schmidt, ultimatum game, inequaltiy aversion, perfect subgame Nash equilibrium

I am preparing for an exam. I have found an old exam but I have no solutions for it, so I tried to solve it, but I dont know if I did it correctly and need therefore your help. The problem looks as ...
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1answer
86 views

Remittance: Migrant workers sending money to their families

I wonder about the role of migrant workers in a general economic context. Migrant working appears all over the world and on many time and space scales: around cities (e.g. commuters) inside ...
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Can someone explain graphically why MRS is invariant under monotonic transformation?

Let $U(x,y)$ be a utility function. Suppose I have an indifference curve for which $U(x,y) = \bar{U}$. Then $dU = 0$ along the curve and I can rearrange to find the MRS. Suppose I have a monotonic ...
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2answers
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Why do housing and parking cost more in urban than in rural areas, but road access doesn't?

In city centres, land is more expensive than in suburban or rural areas, as land is scarce. Consequentially, housing and parking in cities cost more. However, the same is not true for using the road ...
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1answer
37 views

discount factor, function, and rate

Consider an exponential discount factor $\delta\in(0,1)$. Similarly, consider an exponential discount $\textit{function}$: $g(t)=\delta^t$. Then, is defining the discount $\textit{rate}$ as below a ...
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Independence Axiom for Linear Utility - Who proved this first?

Who first proposed the following axiomatization of linear utility using Independence? I remembered that it was Debreu but I am not so sure. What was the first paper proving this? Consider a ...
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1answer
78 views

Show that this income tax is effectively a lump sum tax

This is a standard income, leisure tradeoff model. $$ \max_{c,l} \min\{c; l\} $$ $$s.t. \space c = w(1-t)(1-l)$$ $l$ is leisure (where total time is 1), $w$ is wage, $c$ is consumption, and $t$ is ...
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Why should houses have the same price for a given supply

So I'm reading Varian intermediate microeconomics and in chapter one it's about housing. Suppose we have a inner ring and a outer ring in a city where there is a university. In the inner ring supply ...
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1answer
35 views

A weaker definition of local non-satiation can also imply indifference “curve”

Let $u$ be a continuous utility function on $\mathbb R^2_+\setminus\{0\}$. Consider the following three conditions: Local non satiation says that for any $x \in X$ and $\epsilon > 0$, there exists ...
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1answer
49 views

What is the iff condition for a preference with linear Engel curves (all Engal curves are linear)?

If we restrict the consumption at $\mathbb R_+^n$, then it seems like we are implicitly assuming that the Engel curve pass through the origin, so the iff condition would be homothetic preference. ...
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36 views

two period consumption problem

Ms. A earns 25,000 dollars in period 1 and 15,000 dollars in period 2. Mr. B earns 15,000 dollars in period 1 and 30,000 dollars in period 2. they can borrow money at an interest rate of 200% and can ...
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optimization problem for two individuals

Two flat mates 1 and 2, rent a flat and play their own music on the only CD player owned by flat-owner. They both like their own music, but dislike the music played by the other. Given the timing ...
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1answer
64 views

robinson economy with production

Facing a little bit of a problem with this questions, did a similar one BUT the utility function was not linear and got MRS dependent on goods (was not just a number) - here I am at a loss. The ...
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I have a dataset. How do I convert this data into Indifference Curves?

This is all hypothetical. I understand indifference curves. However, I don't understand how they are produced. I read this question, and the survey answer made sense to me... Research Design: ...
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1answer
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Trying to apply in practice the theory of finding the optimal price in a cournot competition

I recently received my bachelors degree in economics. For fun I wanted to try to apply some micro-economic theory of finding the optimal price in a cournot competition. I wanted to do this for a ...
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32 views

Finding the optimal consumption bundle given the strictly concave utility function $v(x,y) = U(x) +y$?

I am also finding it difficult to understand what are the fundamental differences between analysing optimal bundles between concave and convex functions ? Does it also happen that the optimal bundle ...
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1answer
41 views

Decreasing and increasing returns to scale question

Hi, I have deduced that this function exhibit increasing returns to scale but I am not sure how to verify part d. My answer doesn't show that there is decreasing returns to scale but I can't be sure d ...
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28 views

Rotation of Quasilinear Utility

Let $u(x,y)=f(x)+y$ be a quasilinear utility. Now we rotate it by 45 degrees, (such that the $x-$axis becomes the direction of $(1,1)$) $v(x,y)=f(x-y)+x+y$. Is $v$ also a quasilinear utility? What is ...
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5answers
442 views

Convexity of indifference curve

The convexity of an indifference curve results from the fact that the absolute value of its (negative) derivative, which is the marginal rate of substitution is decreasing. But why do we say that it's ...
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1answer
268 views

How can perfectly competitive firms earn zero profits?

Consider a firm that chooses the quantity of labour $L$ to hire which maximises its profits. As usual, we suppose that output $Y$ is increasing in $L$ but at a strictly decreasing rate; and for ...
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Linear Homothetic Utility

A Homothetic Utility is where $$ \forall x,y, \forall a \in \mathbb{R}_+: \ u(ax,ay)=au(x,y) $$ (or its monotonic transformation). A linear Homothetic utility is defined as $$ \forall x,y, \forall ...
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1answer
89 views

Stackelberg Oligopoly 3 firms [closed]

Imagine that there are 3 firms in a monopolistic market, F1, F2 and F3. Firms 1 and 2 are incumbent firms and act simultaneously whereas Firm 3 observes the actions of both firms before deciding ...
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1answer
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NASH equilibrium [closed]

How to approach questions like these: In a two player static game with a discrete strategic space that permits each player to chose one of the four possible strategies what is the maximum number of ...
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1answer
36 views

Independence and Reduction Axioms

I have read that the Independence of Irrelevant Alternatives axiom in expected utility theory implies the fact that compound lotteries are equally preferred to their reduced form simple lotteries. ...
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1answer
53 views

Demand correspondence is both upper and lower hemi-continuous; is the preference continuous?

$\succsim$ is a weak order over $\mathbb R^L$. For a closed budget set $B\subset\mathbb R^L$, define demand correspondence: $$D(B)=\{x\in B|x\succsim y\forall y\in B\}$$. We know that $D$ is always ...
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1answer
62 views

Supply curve for a competitive firm with constant MC

I know that for a perfectly competitive firm, the supply curve is given by $p=MC \ge AVC$, where $AVC$ is the average variable cost. Now I get really confused when the $MC$ comes out to be a constant....
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2answers
30 views

Can marketing efforts be considered to be a factor of production?

This is a sightly unconventional question, but I want to know whether marketing efforts can be considered as a factor of production. After all, if no one knows about your product, you can't make a ...
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1answer
36 views

First Order Stochastic Domination and lottery preferences

Let $L$,$L'$ be two lotteries over the real numbers. Let $u$ be an increasing Bernoulli utility function. Let $F_L$, $F_{L'}$ be the CDFs of the two lotteries. We wish to show that $$L \succ_{FOSD} L'...
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42 views

Maximization when parameters are unknown

I would like to know if my understanding about how to find a maximum of the function when some parameters are unknown is correct. Consider the following maximization problem. $\max_{x}V=\int_0^{a(x)}...