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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251 views

Why does profit maximization implies that both of the following are equal? [closed]

Why Profit maximization implies that rate of return to capital equals the net marginal product of capital. Prove and give intuition why both are equal. I also wonder that why it doesn't implies rate ...
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list of math intense graduate level microeconomics books?

List of math intense graduate level microeconomics books? Except Reny's book, krep's books, varian's book and mas-collell's book books from subfields are acceptable, however by math intense i mean ...
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Marshallian Demand for Cobb-Douglas

When trying maximize the utility having a cobb-douglas utility function $u=x_1^ax_2^b$, with $a+b = 1$, I found the following formulas (Wikipedia: Marshallian Demand): $x_1 = \frac{am}{p_1}\\ x_2 = \...
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1answer
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What does Hayek mean at the end of the first paragraph of The Use of Knowledge?

I reproduce here the first paragraph of Hayek's well-known essay The Use of Knowledge in Society: What is the problem we wish to solve when we try to construct a rational economic order? On certain ...
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859 views

Perfect competition questions

I have problems with deciding whether those statements are true or false. In a short/long run price of equilibrium on a perfectly compettive market might be either lower or higher then average total ...
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I need something like “how to calculate equilibrium price for complete idiots”

My grandfather raises, sells and resells livestock and I want to help him by calculating when and for what price to (re)sell or buy livestock. As far as I understand(although I have a hunch that I ...
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2answers
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Weak axiom of revealed preference and choice coherence - how to show they are equivalent

$B$ and $B'$ are elements of the family of subsets of $X$ WARP For every pair $x,y \in B \cap B' $ and if $x \in c(B)$ , then if $y \in c(B'), x$ must $\in c(B').$ Choice Coherence For very pair $x,...
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169 views

In a competitive equilibrium, can price of a commodity ever be zero?

I don't think they can be, but I'm not very sure. Are their special cases where the equilibrium is competitive even when prices are zero?
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106 views

RBC model and indivisible labour

First of all, I would like to apologise for the fact that I will include a link in my question rather than a direct question, however, I have no idea how to do it in a different way. I have been ...
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1answer
93 views

How does this company gain from economies of scale?

Given this story, I am (my younger brother is) asked why (rather than how?) a particular company Pepper plc is likely to benefit from economies of scale. In short, Jo has a shop that sells electrical ...
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Taxes levied on sellers = Taxes levied on buyers

All page numbers refer to Principles of Microeconomics, 7 Ed, 2014, by NG Mankiw. [p 125:] Taxes levied on sellers and taxes levied on buyers are equivalent. [p 156:] ... When a tax is levied on ...
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727 views

Finding equilibrium of perfect competition in the short run with a cost function

I am having a lot of problems trying to find the equilibrium price when we are given a cost function and demand function, but no supply function. All firms have the following production function: $...
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116 views

Minimization of costs combination of factors of production

Given the production function $D(x,y,z)=\min\{2x, \left( 2y+4z\right)\}$, and knowing that P-price $P_x=30,P_y=20,P_z=5$ and volume of production $D=200$. How much of x,y and z is needed to minimize ...
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1answer
127 views

Why do all apartment complexes in Albuquerque have pools?

Apartment builders have a constrained optimization problem whereby they balance building different amenities to attract tenants with varying preferences. Recently when searching for apartments I ...
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1answer
383 views

Budget constraint hyperplanes

This question relates to a specific paper by Eric Budish, published in 2011 in JPE, but I've tried to put all relevant information in this question. On page 1072, he defines budget constraint ...
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1answer
60 views

Substitutive or supportive factors of production

Given the function: $y=A K^\alpha L^\beta, A,\alpha,\beta >0$ $y=aK+bL^{0.5}, a,b>0$ Decide whether capital and labour are substitute or supportive factors of production. How to solve this ...
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1answer
495 views

Find Change in output from marginal products of labor/capital

A firm produces 231 doohickeys with 8.4 units of labour and 22.1 units of capital. the marginal product of labour is 18, the marginal product of capital is 20. Approximately how many doohickeys will ...
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1answer
131 views

How to write the dual problem of this maximization problem?

On this note for Shapley-Shubik model, there's a maximization problem: $$\max_{x_{ij} \in \mathbb{R}^{M \times N}}\sum_{j \in N}\sum_{i \in M}v_{ij}x_{ij}$$ $$\text{s.t.} \ \sum_{j \in N}x_{ij} \...
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Given Cobb-Douglas production functions for 2 factories (same owner), how will the owner produce $y$?

So my question is this: A company owns two factories, A and B, each with the following production functions: $f_A(x_1,x_2)=x_1^{\alpha}x_2^{1-\alpha}$ $f_B(x_1,x_2)=x_1^{\beta}x_2^{1-\beta}$ Now ...
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2answers
544 views

Is Marginal Rate of Substitution a multivariable function?

Suppose I have $U(x,y)$ and a level set of indifference curves. Suppose the value of $U$ along a given curve is $\bar{U}$. We know $dU = 0$. We compute total derivative, rearrange, and now have $$\...
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Proof of Proposition 1.4 from Microfoundations I by Kreps

Regardless of the size of X (set of all possible objects), if a preference relation which is complete and transitive is defined on it, then the corresponding choice function generated by it will ...
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1answer
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Do assets without rental income streams appreciate relative to assets with rental income streams?

In his book "The Armchair Economist", economist Steve Landsburg critiques an op-ed concerning the relative value of stocks and real estate: James K. Glassman wrote a piece in The New Republic to ...
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Why is the social value curve NOT the supply curve shifted downwards?

Abbreviate 'Social Value' as SV. In some other resources such as this, the SV curve is known as the Social Marginal Benefit curve. The following quotes explain [1.] why the SV curve is the demand ...
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Intuitively, why is Profit = (Price $-$ Average Cost) $\times$ Quantity?

Sources: p 289, Principles of Microeconomics (7 Ed, 2014) by N G Mankiw p 259, Modern Principles of Economics (2 ed, 2011) by Tyler Cowen, Alex Tabarrok Definitions: Profit $:=$ Total Revenue $−$ ...
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1answer
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demand impact on shares price

Knowing that share prices are determined by the forces of supply and demand, other factors can also play a role in this but lets consider the fact that prices are only based on supply and demand.In ...
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Modern theory of integrability of demand?

I am aware of Hurwickz Uzawa work in integability, neatly summarized by Border http://people.hss.caltech.edu/~kcb/Notes/Demand4-Integrability.pdf I am wondering if there is any modern treatment of the ...
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Consumer Surplus question

The demand for rail travel is $Q^d = 600 - 2P$ where quantity is thousands of train journeys per quarter and $P$ is in £ per journey. How much would the consumer surplus change if rising cost of ...
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Struggling with uncompensated/compensated demand

I'm working on a problem set for my intermediate microeconomics course, but I'm having trouble deriving the compensated and uncompensated demand functions. This is the utility function: $U(x, y, z) = ...
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1answer
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How does one calculate compensating variation for multiple price change?

For a single variable price change, $$CV = - \int_{p_x^o}^{p_x^f} x_H(\rho,p_y,v^o)d\rho$$ $x_H$ is the Hicksian demand function for good $x$. What happens if both prices change? How does one ...
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1answer
736 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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3answers
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How are workers harmed, from firms' payroll tax revenue aimed at reducing workers' tax?

Source: p 130, Question 6.5, Principles of Microeconomics, 7 Ed, 2014, by N Gregory Mankiw = (page unknown), Question 6.5, Principles of Microeconomics, 4 Ed, 2008, by N Gregory Mankiw p 125, Case ...
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1answer
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Doubts in modelling the Arthur(1991) paper: Designing economic agents that act like human agent

I am implementing Arthur's paper "Designing economic agents that act like human agent: A behavioral approach to bounded rationality" from 1991 in JAVA and I am having a problem understanding one part ...
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1answer
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Benefits of a cartel among firms

Suppose I have $n>2$ firms selling differentiated products. These firms form a cartel for the price. The cartel has size $n_c$. Let $\pi_{i,m}$ be the payoff of a firm $i$ outside the cartel and $\...
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The relationship between the expenditure function and many others!

I dont understand the relationships between Hicksian demand, walrasian demand (marshallian), the expenditure function and the indirect utility function (including the value function V(b)). I have ...
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1answer
589 views

Effect of specific tax on demand and supply

There are intersecting supply and demand curves. A tax is levied on suppliers. Say the tax is a fixed tax (for example, VAT) and not an ad valorem tax. Why can we not just move along the demand ...
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1answer
2k views

Walrasian Equilibrium under Leontief Preferences

There are two people in the economy, A and B. Both have the utility function: U=min{x,y}. A has an initial endowment of (x,y)=(50,100) and B has (x,y)=(100,50). I know how to draw the Edgeworth box ...
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506 views

Moral Hazard or Adverse Selection?

I pay the doctor before he conducts the surgery. Can anyone explain to me whether this statement shows moral hazard or adverse selection?
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What is a substitute/complement in terms of mixed partial derivatives?

I am trying to understand how substitutability relates to mixed partial derivatives. I thought the change in marginal utility with respect to a change in the amount of $x$ would correspond to $$\frac{\...
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1answer
445 views

Estimating Price Elasticity from sales

I'm looking at data for an online shop with clothing items listed at different prices. I'd like to use this information to do some kind of profit maximization (i.e. I'd like to have some understanding ...
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0answers
285 views

Risk and uncertainty [closed]

A risk averse is given this: Option1: 1000 with p=0.25 and 100 with p=0.75. Option 2: 325 for sure. Which option would he choose? For this part, I know the person will choose option 2 over option 1. ...
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Question about the Ellsberg Paradox in Expected Utility Theory

The von Neumann-Morgenstern theorem states that, assuming a person's preferences under risk satisfy certain rationality axioms, then there exists a utility function u, the von Neumann utility function,...
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1answer
272 views

How does Google price the items on Google Play?

I am a fledgling computer science researcher working in intersection of economics and computation. Please excuse me if this question seems out of place to the administrator. I am currently studying ...
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1answer
923 views

Equi-marginal Principle

Hi the textbook i am studding from simply states that 'the rule for rational consumer behaviour is know as the equi-marginal principle. This states that a consumer will get the highest utility from a ...
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1answer
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Corner solution-consumer theory [closed]

$$U(q_1,q_2)=4{q_1}^{0.5}+q_2$$ $$P_1=1$$ and $$P_2=2$$ Initially $$Income=40$$ Then the question asks :how do I know what income I can get a corner solution? Anyone can help me with this? Thank you
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Shifts in demand curves

When plotting a demand curve for a good, lets say carrots with price on the y-axis and quantity demanded on the x-axis. A shift any determinant of demand other than price of carrots results in a shift ...
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2answers
650 views

Marginal rate of substitution

This is a homework question. Suppose a consumer has preferences over two goods that can be represented by the utility function $U(x,y) = 2\sqrt{x} + y$ The marginal rate of substitution of $x$ for $...
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Translog Preferences

What are translog preferences? The wikipedia article only clears up that it stands for transcendental logarithmic preferences, and that they are a generalization of Cobb-Douglas preferences. Do they ...
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3answers
100 views

Papers on measuring institutions

I'm new to this subject, and I'm looking for papers on measuring the 'quality' of institutions and their possible role in the development of a country. ANy help would be appreciated.
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2answers
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Are Cobb Douglas goods complements or substitutes?

Given $$U(x,y)= x^\alpha y^{1-\alpha}$$ $\alpha \in (0,1)$, are Cobb Douglas goods (here $x$ and $y$) complements, substitutes, or neither? Why? An explanation with mixed partial derivatives would ...
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2answers
666 views

Discounted (present value) calculation

I had a homework problem regarding calculating a discounted present value. My solution is: 15000 * (1+.08)^1 + 15000 * (1+.08)^2 = $33 696 The question is this: ...