# 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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### Cobb-Douglas utility function

Why in Cobb-Douglas utility function, the exponents have to sum to one? Can they not be equal to 1 and why?
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1 vote
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### Convex preference and convex utility

What are the differences between convex preferences and covex utility function? Why are convexity preferences usually represented by the quasi-concave function and not the convex function?
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### Suppose $A$ is a $2x2$ matrix and ${\bf x}=(x_1, x_2)$. What does "$f(Ax)$ is supermodular" mean?

Suppose $A$ is a $2x2$ matrix, e.g., $A=\begin{vmatrix} a_{11} & a_{12} \\ a_{21} & a_{22} \\ \end{vmatrix}$, and ${\bf x}=(x_1, x_2)$. Suppose $f()$ is continuous and twice differentiable. ...
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### How price is determined in the following monopoly model question?

I am studying microeconomics, and got stuck on the following question, specifically, part (b) and part (c): A monopoly-owned retail store is located next to a monopoly-owned parking lot. (The store ...
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### Why is the supply curve monotonically increasing?

Context I am a beginner in microeconomics. I am trying to understand the demand-supply model. In my previous question (Supply curve of what?) I understood that supply curves exist for each product. ...
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### Supply curve of what?

I am a beginner in microeconomics. I do not understand the supply curve at all. Supply curve of what? Is there a supply curve for each product? For example, is there the supply curve of "iPhone ...
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### Question on Isolating The Wealth Effect in Analysis of Changes in Price-Wealth Combinations - MWG Exercise 2.F.3 Parts (e) and (f)

I am doing exercises in Chapter 2 of MWG. I feel I got completely lost in exercise 2.F.3 parts (e) and (f). $\textbf{Exercise}$ Here is the question: I have solved parts (a) to (d). In particular, I ...
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1 vote
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### Taxation shifting the supply curve left, the demand left curve, why not both?

When we model supply and demand, I can understand why when we introduce the conception of taxation, we can model it as a shift to the left of the supply curve, this is because the marginal cost of ...
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1 vote
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### What is a sufficient condition on the consumption set such that monotonicity of preferences implies local nonsatiation?

Consider an agent with consumption set $X \subseteq \mathbb R^L$ (where $0 < L < \infty$) and rational preferences $\succeq$ defined on $X$, and define monotonicity and local nonsatiation as ...
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1 vote
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### Cost function from a weighted CES production function

I want to find the cost function given the CES production function: $$Y = F(x_1,x_2) = (\lambda x_1^ \rho+(1-\lambda)x_2^\rho)^\frac{1}{\rho}$$ with $0<\rho<1$. So far I have set up the ...
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### Question on The Weak Axiom of Revealed Preference and The Definition of Revealed Preference Relation

I am solving the following problem (from Exercise 2.F.3 (b) in MWG) and I got confused by the weak axiom of revealed preference and the definition of the revealed preference relation. Here is the ...
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Question: In Islandia, a small economy, Jack and Jill shall make their production and consumption decisions together. Jack can produce either 10 kg of banana or 14 kg of tea per day. Jill can ...
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### MWG Exercise 2.E.5

Exercise Suppose that $x(\mathbf{p},w)$ is a demand function which is homogeneous of degree one with respect to $w$ and satisfies Walras' law and homogeneity of degree zero. Suppose also that all the ...
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### Assumption of interior solution in the Lagrangian method

Why do we need to assume an interior solution before using Lagrangian method for utility maximization problems?
1 vote
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### Tastes: instantaneous or overall utility function

What are tastes referring to? I have always considered them to be the instantaneous part of dynamic utility function: $$U = u_1(x_1) + u_2(x_2) + \dots u_t(x_t)$$ Where $u_s$ denotes tastes in the ...
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### How important is the underwriter syndicate of a bond?

When it comes to bond issuance, how crucial is the involvement of an underwriter syndicate in the process? They seem it be a bit like "hit-and-run" agents who facilitate the issuance, but ...
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1 vote
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### A question in social choice and preference aggregation

Let $I = \{1, 2, 3\}$ denote the set of individuals and $X = [a, b]\subset \mathbb{R}^+$ with $a, b \in \mathbb{R}^+$ and $a < b$, be the set of alternatives. For each $i\in I$ and some $p_i\in X$ ...
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### Is there relationship between increasing and decreasing returns to scale and homogeneity?

According to Varian's Macroeconomic Analysis (page 15), when returns to scale are constant, production function will be homogeneous of degree 1. When he discusses increasing and decreasing returns to ...
1 vote
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### Calculate consumers WTP for product attributes

I have a large panel on the city level of how many cars of each {model, fueltype} combination were newly registered in each year. This panel also includes a large variety of characteristics for each ...
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### Find the competitive equilibrium of the following economy

The following question was given as a part of a task in microeconomic theory course. It is not from some textbook and since I still haven't figured a way to solve it I will leave it here. Thank you in ...
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1 vote
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### Vertical income expansion path: explanation?

On the horizontal axis we have good x, on the vertical axis good y. The income expansion path is vertical. Which of the following assumptions is wrong? no homotheticity no strong monoticity ...
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### Could you give an example of production function such that involves sunk costs?

I am looking for an example of a single output-single input production function such that involves sunk costs. I have in my mind that a drug - firm that is motivated to make a new drug, the drug has ...
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### How Kyle's $\lambda$ emerges in the demand functions of the informed and uninformed traders?

From Albert S. Kyle's 1989 model. Suppose that the are trhee types of traders in the market, informed traders (I), uninformed traders (U) and noise traders. The population of $I$ traders is $N$ (...
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### Why are house helpers so expensive in the west?

In India, unlike western countries, most families employed in formal sector can afford a maid (engineer, doctor and so on). The commonly quoted reason on why one can do this is because of the large ...
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### How do I find the efficient frontier without having variance?

How is it possible to find the efficient frontier? Thank you in advance for any help.
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