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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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1answer
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)}...
2
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1answer
107 views

Elasticity with perfectly inelastic / elastic demand

When a change in price results in an infinitely large response in quantity demanded, demand is perfectly elastic. The perfectly elastic demand curve is horizontal. At price P, consumers will buy a ...
6
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1answer
53 views

Meaning of $dF(z)$ in expected utility framework

Background: from a Microeconomics course, $F$ is a cdf. In other words, if $F$ has a density function $f$, then $$F(z)={\int_{-\infty}^z f(x) dx} $$ Write the Bernoulli utility function $u:...
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1answer
34 views

Production function involving profit maximisation

​Hi, I don't get how the answer of d is deduced in this question because I don't think I made any mistakes in my calculation and have also used all the information given. After knowing L is 800, I ...
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1answer
37 views

MRTS question involving production function [closed]

My work out shows constant MRTS and also increasing returns to scale. I thought the answer was C as I only found increasing marginal products of labour and capital. I really don't see how the answer ...
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0answers
30 views

I can not answer f) Pareto efficiency [closed]

Consider a society of individuals who receive an income of \$10, 000 pesos if they are healthy and \$100 pesos if they are sick. There are two types of individuals: some who get sick with a ...
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1answer
26 views

Price discrimination question

For this question the answer is b which is the TR of group 2. If price is the same, my question is why isn't the demand function of group 1 considered? Why is the TR of group 1 omitted?
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0answers
26 views

Optimal pareto in two-person game

For what values $x$, $y$ the profile $(D,L)$ is Pareto optimal? \begin{array}{c|ccc} & L & R \\ \hline U & x,5 & x+2,y \\ D& 1,-1 & x,0 \\ \end{array} Is correct $x<1$ ? ...
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0answers
13 views

Compound lottery preference implies simple lottery preference

Suppose $\alpha>\beta$ and for two lotteries $L, L'$ $\alpha L + (1 - \alpha)L' \succ \beta L + (1- \beta) L'$ where $\succ$ implies preference. If the independence theorem holds, how do you ...
5
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3answers
979 views

The Sonnenschein-Mantel-Debreu results, what are the implications for macroeconomics?

I have always wondered why such a negative result such as Sonnenschein–Mantel–Debreu theorem (SMD) theorem is usually ignored or disregarded by practitioners, specially in macro. The result roughly ...
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2answers
75 views

SMD and Lucas critique

One of the consequences of Lucas' critique is that models must be microfounded. On the other side, Sonnenschein-Mantel-Debreu (SMD) theorem claims that microfoundation doesn't have any repercussion on ...
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0answers
26 views

Condition for a Nash equilibrium

Consider two people have a mutually advantageous relationship. That is, if both dedicate more effort to the relationship both improve. Specifically, each individual chooses a level of effort $x_{i}\...
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3answers
72 views

Why is demand curve always going down?

In many economic charts with demand and supply curve, people often say the demand curve goes down with more quantity. But I will give you a really practical example, why I think they are wrong. ...
2
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2answers
48 views

Market baskets: cross-border comparisons

The concept of a market or consumer basket is quite intuitive. I assume a market basket for a given country tells for which goods an average person spends how much of her money. To be able to compare ...
2
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1answer
82 views

Insurance and Hirshleifer effect

I am trying to understand the statmement that 'public information kills insurance opportunity' -- referred to as Hirshleifer effect. Does it (in general) lead to some undesirable outcomes? Could you ...
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0answers
34 views

Asymmetric Nash Bargaining

The Nash bargaining solution selects the unique solution to the maximization problem $\max_{s_1, s_2 } (s_1 - d_1) (s_2 - d_2)$ such that the solution satisfy the following axioms : Invariance ...
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1answer
17 views

Under what conditions should the External Rate of Return (ERR) be used instead of Net Present Worth (NPW) and vice versa?

I have just read the concept of both Net Present Worth (NPW) and the External Rate of Return (ERR). This is what I have understood of these two values: NPW is the net discounted value of all the cash ...
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2answers
70 views

Why marginal revenue must equal marginal cost?

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1answer
35 views

Credible Threat in the Perfect Bayesian Equilibrium

Consider a simple game between P1 and P2 shown in Figure 1. We consider a Perfect Bayesian Equilibrium. P1 uses a cutoff strategy based on his $c_1$ that has the Cumulative Distribution Function of $...
1
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2answers
60 views

Expected Utility with expected value and variance

I'm having trouble with a question from Ariel Rubinstein's book, Lecture Notes in Microeconomic Theory. It's the problem 2 from Problem Set 7. Here's the question: Show that the utility function $u(...
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2answers
117 views

Rigorous solution of Stackelberg leader-follower game with N-players?

In the classical two-player Stackelberg game (sequential Cournot) we have a linear demand function $P = 1 - Q$ where $Q = \sum_0^2 q_i $, and we assume homogenous production cost $c$. By starting from ...
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2answers
100 views

If $X$ is a Giffen good then $Y$ must be a normal good

While going through some problems as part of self-study I encountered the following True/False question: Q. Steven only consumes two goods: $X$ and $Y$. If $X$ is a Giffen good for Steven, then $Y$ ...
2
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1answer
134 views

WARP implies completeness, transitivity and thus rationalizability. What is wrong with the statement?

Let $A$ be a menu and $R$ be a complete and transitive binary relation. Define choice correspondence generated by $R$: $$c_R(A)=\{x\in A|| xRy \ \forall y\in A\}.$$ Theorem (from Kreps 1988): for ...
2
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1answer
41 views

Prove that in presence of many goods, the law of DMRS implies that at least one good must be a net substitute for any other good

I've been reading a book where the author claims that "if there are two goods they are always net substitutes. Along an indifference curve an increase in price of good 2 leads to less of good 2 and ...
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0answers
26 views

Integrability of Demand

I wondered if someone would be willing to provide an intuitive presentation of the so-called integrability of demand/integrability conditions. My own knowledge of these conditions is that they're ...
3
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1answer
56 views

Envelope Theorem in Hopkins and Kornienko (2010)

This is from Hopkins and Kornienko (2010). In this model, $x$ is investments, $s$ is status, and $y=z-x$ is leisure, where $z$ is endowments. $x(r)$ is the optimal investment, and the relative ...
2
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2answers
427 views

Stackelberg with 3 firms

I'm currently trying to solve the following problem: Stackelberg with 3 firms Imagine there are three firms on a monopolistically competitive market. The marginal cost of produc- tion in each ...
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0answers
72 views

On complements and substitutes with a CES function

Define the CES function $q : \mathbb R_+^n \to [0,1]$ by \begin{align} q(x) = \left[\frac{1}{n}\sum_{j=1}^n{x_j^\frac{\sigma-1}{\sigma}}\right]^\frac{\sigma}{\sigma-1} \end{align} where $x \in \mathbb ...
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7answers
3k views

Mathematical Micro/Macro Economics Textbook Recommendation

I was formerly an economics major and now also majoring in mathematics. I want a textbook that is rigorously based on mathematics; not just using mathematcis whenever the author wants, but in a more ...
2
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1answer
34 views

Obligations of a company

Any company may "feel" obligated towards several parties at once: its shareholders its employees its customers its partner companies (sub-contractors and suppliers) its country and social environment ...
2
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1answer
31 views

Ownership in Neoclassical Economics/Property Rights Question

I'm currently looking at New Institutional Economics and I can't get my head around the assumption of the neoclassical irrelevance theorem stated by the neoclassical economics. It doesn't matter ...
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1answer
130 views

Are monopolies always price makers?

I have the following True/False question: A single price-taking firm on the market is called a monopoly. As far as I know, a monopoly is a price maker not a price taker. That being said if it is a ...
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1answer
1k views

Deriving demand function from utility function

How do I derive the demand function from $$U=y + 2\sqrt{x}$$ Currently I have $MRS = \frac{1}{\sqrt{x}} = \frac{P_x}{P_y}$, so, $P_y = P_x\sqrt{x}$ Using the budget line: $$I = xP_x + yP_y \implies ...
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2answers
68 views

Providing subsidies affects Marginal Private cost but not Marginal Social Cost?

According to the theory that I'm seeing on the internet and in textbooks, when a government wants to correct underproduction due to a positive externality of production, they can decide to subsidize ...
2
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1answer
19 views

Substitution effect when price of both goods change by the same percentage

I am trying to grasp the concept of income- and substitution effects. The way, I've understood it, the decomposition bundle is found, at the original indifference curve, where the slope equals that ...
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1answer
53 views

Is truth cheap, and falsehood expensive and volatile? [closed]

Question: In a scenario where data is bought and sold in a double-auction market, will the trading price and volatility of a given piece of data become inversely proportional to its accuracy over ...
4
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0answers
33 views

Afriat theorem for negative goods

GARP and Afrait theorem assume that the alternative $x\in\mathbb R_+$ is always positive. In some economic contexts, such as financial choices, the attribute can be negative. I wonder if we can ...
0
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1answer
30 views

Emergence of notion “primitive business” in the era of Industry 4.0 and globalization

It has always been the conventional wisdom that businesses should be fit to survive in the market competition, that only the best businesses can survive beyond horizon of several years, that survival ...
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2answers
630 views

Deriving the translog production function

Ive been having difficulty deriving the translog production function defined as: $$\ln y=\alpha_0+\sum_{i=1}^n\alpha_i \ln x_i+\frac{1}{2}\sum_{i=1}^n\sum_{j=1}^n\ \beta_{ij}\ln x_i\ln x_j $$ I know ...
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2answers
94 views

Regarding the group formation in an oil-price experiment

I'd like to have your opinion on the following; Assuming that I'm doing a research on setting the optimal price for gasoline for a company and my client wants me to perform a study on​ customers' ...
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0answers
8 views

wage/productivity, what does it show

I just confused about the fact that does wage/productivity show the wage gap? So if wage/productivity is the wage gap then by the increase in productivity the wage gap should decrease as the ...
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0answers
48 views

Homogeneity in Marshallian demand function

I have worked out the expenditure function for a Marshallian demand function, R represents a fixed cost and the questions asks about why the expenditure function is unusual. The answer explains it is ...
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1answer
23 views

Which of the following firms can operate in a perfectly competitive industry? [closed]

This was a question in a test. I am looking for an explanation for the answer. Firm A's cost of producing output y > 0 is c(y) = 1 + y Firm B's cost of producing output y is c(y) = y(1-y)^2 Answer: ...
2
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1answer
69 views

First order conditions in a Moral Hazard problem

Consider a principal-agent problem where effort is observable. Let $\pi$ denote profit, let $w$ denote the wage to be paid to the agent, and let $f(\pi|e)$ denote the pdf of the profit, conditional on ...
4
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1answer
67 views

GARP and SARP assumed mononticity?

Monotonicity means the decision maker prefer more goods than less. It is not mentioned in textbook that SARP and GARP preasumed monotonicity. GARP: if $a$ is indirectly revealed preferred to $b$, ...
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3answers
1k views

Moral hazard vs hidden information.

What is the difference between hidden information and moral hazard? I cannot understand these two terms mainly. Please explain. Thank you.
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0answers
20 views

How are preferences related to relative prices?

For instance, across regions of a country or between countries. Is that different preferences for food lead to distinct relative prices in different regions or countries? Or is it the other way ...
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1answer
95 views

Proof of monotonocity of preferences

Question from Intermediate Microeconomics by Hal Varian: "We claimed in the text that if preferences were monotonic, then a diagonal line through the origin would intersect each indifference curve ...
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2answers
115 views

Why is Marginal Cost = Price better than Marginal Cost > Price for maximizing profit? [closed]

Isn't MC>P a better aim? Given the revenue you earn from each unit is more than cost in producing each unit?
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1answer
47 views

Marginal Cost Calculation issue

I calculated the Marginal cost for the below question. But it seems the results are wrong After coming up with an innovative idea for a new product, you paid 4000 to an industrial designer to draw ...