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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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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?
Huy Lê Thanh's user avatar
1 vote
1 answer
41 views

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?
Huy Lê Thanh's user avatar
2 votes
1 answer
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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. ...
opre's user avatar
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2 votes
1 answer
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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 ...
Grand Minister's user avatar
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1 answer
68 views

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. ...
Dinosaur's user avatar
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50 views

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 ...
Dinosaur's user avatar
5 votes
1 answer
90 views

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 ...
Shenron's user avatar
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2 answers
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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 ...
Sam Connell's user avatar
1 vote
1 answer
40 views

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 ...
chsk's user avatar
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1 answer
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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 ...
fabs's user avatar
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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 ...
Shenron's user avatar
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0 answers
25 views

Microeconomics-opportunity cost and trade

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 ...
sharonzj f's user avatar
2 votes
1 answer
105 views

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 ...
Shenron's user avatar
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0 answers
70 views

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?
Ranu Jain's user avatar
1 vote
1 answer
37 views

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 ...
Athaeneus's user avatar
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2 votes
1 answer
153 views

Spence-Mirrlees Single Crossing Condition

This question stems from section 2.3.3.1, pages 76-78 of Bolton and Dewatripont "Contract Theory". Suppose we have a single buyer and supplier. Buyers types are drawn from a continuum $\...
Joseph Basford's user avatar
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78 views

substitution effect in slutsky equation

We know Slutsky equation decomposes the price effect into substitution effect and income effect, where the substitution effect is the partial derivative of Hicksian demand function against the change ...
Nonenicht's user avatar
1 vote
1 answer
54 views

Does utility representation theorem need locally-nonsatiated as a condition?

I'm reading MWG's Microeconomics, and I'm a bit confused about the utility representation theorem. It states that a rational and continuous preference relation can be represented by a continuous ...
Nonenicht's user avatar
1 vote
1 answer
118 views

Differentiation in proof of Roy's identity

I have an issue deriving the proof of Roy's Identity. It's merely a math issue since I cannot understand how the derivative works. More specifically: When it says: "differentiating the above ...
john's user avatar
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1 vote
0 answers
38 views

Considering there are four different goods {w,x,y,z}, how many different relations can be defined using all goods

In this problem, you can either prefer a good to another, disprefer a good to another or be indifferent between the two goods. While I have been able to do it mechanically, I am very confused as to ...
Sasha Blain's user avatar
1 vote
0 answers
55 views

Asymmetric Information in the Labor Market

In Greenwald's paper "Adverse Selection in the Labour Market", he argued that there exists an asymmetric information problem in labor market where firms tend to keep workers who are more ...
ask's user avatar
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2 answers
45 views

No difference in profits between quantity where MR>MC and quantity where MR=MC

Let's say that we produce 70 units as in the picture above. MR = \$4 , MC = \$2.5 and profit is \$90. Each of the next 10 units (till 80 units) have a positive contribution to profit since their MR>...
johnniem's user avatar
0 votes
0 answers
26 views

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 ...
apg's user avatar
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1 vote
0 answers
53 views

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 $p_i\in X$ ...
Oliver Queen's user avatar
5 votes
2 answers
270 views

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 ...
HerrMaximus's user avatar
1 vote
0 answers
19 views

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 ...
rösti23's user avatar
0 votes
2 answers
148 views

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 ...
Oliver Queen's user avatar
1 vote
1 answer
52 views

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 ...
EcoSTUD233's user avatar
0 votes
2 answers
132 views

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 ...
Oliver Queen's user avatar
2 votes
0 answers
67 views

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 $N$ (...
Oliver Queen's user avatar
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0 answers
25 views

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 ...
Babu's user avatar
  • 459
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0 answers
21 views

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.
Federica's user avatar
0 votes
0 answers
26 views

Maximize profit with per unit profit of labor and capital (regulated firm)

Suppose a firm is regulated, such that it is permitted to recover the costs of its labor and capital inputs. Total revenue for the firm is therefore $R= \mu L + \sigma K$, where L=labor, K=capital, $\...
RegulatedEcon's user avatar
1 vote
2 answers
123 views

Unwrapping Kamenica and Gentzkow model

Let's start with the basics. Suppose that $\Theta$ is a finite set of states and $\theta$ is the element of the state set. To simplify the model, we assume that $\Theta = \{\theta_1 = G, \theta_2 = B \...
Oliver Queen's user avatar
0 votes
1 answer
50 views

Production function f(z1, z2, z3, z4) = min{α1z1, α2z2} + min {α3z3, α4z4}

Consider the following production function: $$f(z_1, z_2, z_3, z_4) = min\{α_1z_1, α_2z_2\} + min \{α_3z_3, α_4z4\}$$ The solution to the cost minimization problem requires $z1^* = z2^*$ and $z3^* = ...
Henrsom's user avatar
1 vote
0 answers
37 views

Why is the preference relation based on the pareto criterion used as the social choice rule not complete?

Let $\mathbb{R}$ be the set of all possible preference relations. Let $\mathbb{R}^n=\{(R_1,\dots,R_n)|R_i \in \mathbb{R} \}$ be the set of all possible profiles. A social choice rule (SCR) is a ...
thecountofmontecristo's user avatar
1 vote
0 answers
56 views

What stops the pay-what-you-want pricing strategy from being more popular?

The challenges or weaknesses that this strategy faces From Pay what you want - Wikipedia: Pay what you want (or PWYW, also referred to as value-for-value model is a pricing strategy where buyers pay ...
Ooker's user avatar
  • 113
0 votes
1 answer
41 views

Derive the input requirement set from production set

This question relates to the book Varian Microeconomic Analysis 3rd edition exercise 1.1. Much like this question but my emphasize is different. Q: True or False? If V(y) is a convex set, then the ...
yomath's user avatar
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3 votes
1 answer
79 views

Proving the Choice with Recommendations

Suppose that there are two types of outcomes, i.e. $X=X_1 \cup X_2$ with $X_1 \cap X_2=∅$. All outcomes in $X_2$ are the same to the decision maker (he doesn't understand these kind of products). He ...
homo-economitux's user avatar
-3 votes
1 answer
125 views

Why economics does not believe in data/empirical evidence?

There are influential ‘theories’ that are in plain contrast to experimental evidence, including the capital asset pricing model, the efficient market hypothesis, or the Markowitz portfolio theory. ...
quanity's user avatar
  • 137
2 votes
0 answers
27 views

Fake long-term deposits

Story#1 Say banks have two saving options for you: one-year option or month-by-month flex option. Say the flex option give a annualized rate of 2 percent, and the one-year option gives 5 percent (...
High GPA's user avatar
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2 votes
2 answers
276 views

Ensuring positive shares in homothetic demand system estimation

I am performing a demand system estimation, and a counter-factual exercise which involves estimating demands at prices quite far from the observed ones. I know a priori that preferences are homothetic,...
cfp's user avatar
  • 252
1 vote
0 answers
47 views

Does a social preference relation with unrestricted domain have to necessarily be complete?

I understand that the social preference relation need not be an ordering. But is it also not necessary that it be complete? I have read conflicting viewpoints on this. We haven't been taught what the ...
thecountofmontecristo's user avatar
0 votes
1 answer
59 views

Stackelberg model with 3 symmetric firms

Firm 1, the incumbent, sets quantity q1 first, then firm 2 enters the market and sets quantity q2, knowing q1. Lastly, firm 2 enters the market and sets quantity q3, knowing q1 and q2. Firms are ...
Ksenia's user avatar
  • 21
2 votes
1 answer
70 views

Beyond quadratic loss preferences?

I have a complex question. Is there any other way to model the preference misalignments of the sendres (in senders-receivers games) towards the desire of some specific state apart from the quadratic ...
Oliver Queen's user avatar
1 vote
0 answers
98 views

Proof for convex preference relation

⪰ is a strictly convex preference relation on a set X which is the set of all N-tuples of nonnegative real numbers. Further are x,y,z element of this set X and i have the preferences x ≻ y ≻ z given. ...
mediation_boy's user avatar
1 vote
0 answers
33 views

Collusive Price Leadership

In the paper "Collusive Price Leadership" by Julio J. Rotemberg and Garth Saloner in The Journal of Industrial Economics, Vol. 39, No. 1 (Sep., 1990), pp. 93-111, the following statement is ...
Anthony Chen-Zhong-Huang-Jun's user avatar
1 vote
1 answer
53 views

Can Debreu's axiomatization of cardinal utility use equivalent relation instead of preference relation?

Theorem ([Debreu 1959][1] page 9, 10) Let $X_i$ be space of real numbers. If $\succsim$ is continuous, rational, independent and at least three factors are essential, then there exist functions $u_i:...
High GPA's user avatar
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0 votes
0 answers
15 views

For what values of K will the monopolist choose to make and sell only high quality cars?

A monopoly auto manufacturer produces cars and can choose the quality of the car produced. Let x be a measure of quality, and assume that the marginal cost of a unit of quality is constant and equal ...
Sofia Delacruz's user avatar
0 votes
1 answer
82 views

Mean preserving spread of a lottery

Suppose G is a lottery where the payoff is equal to -1 with 0.5 probability and 1 with 0.5 probability. I'm trying to show that G is a mean preserving spread of a lottery with uniform distribution on [...
Justin Cross's user avatar

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