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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How to derive a cost function when a firm takes over another firm to form a monopoly
Let's say firm 1 has a production function $\;=min(L1,K1)$
And firm 2 has a production function $\;= \sqrt{L}\times \sqrt{K}$
Total labour supply $\;=L1+L2\;$ Total capital $\; =K1+K2\;$
And firm 2 ...
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What is the difference among information acquisition, information providing and information design?
Taking a look at the literature of information economics I see three different terminologies about information that seem to have some intersection, though my understanding is not so good. These terms ...
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Looking for open learning material
in the next semester I am going to start studying some economics subjects at uni.
Since I have a little bit of time, I would like to start now already.
Does anyone know where I can find learning ...
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CES in Slutsky matrix (weird results)
We have a Slutsky matrix:
\begin{bmatrix}
\partial x_{1}^H/\partial P_1 & \partial x_{1}^H/\partial P_2 & \dots & \partial x_{1}^H/\partial P_n \\
\partial x_{2}^H/\partial P_1 &...
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How to solve the Bertrand model when marginal costs are different and not constant?
Find the equilibrium in the Bertrand model with two firms, with total costs given by:
$TC_1(q_1) = \alpha q_{1}^2$
$TC_2(q_2) = \beta q_{2}^2$
Inverse demand is given by
$P = A - Q$,
where $Q = q_1 + ...
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What is the economic intuition of prudence in the static case?
How can we interpret a "prudent" agent in the static case (i.e., someone with $u'''(\cdot)>0$)?
I understand that in a dynamic setting, someone exhibiting prudence would do precautionary ...
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The formula for expansion path
Is there a way how to precisely compute the expansion path?
I know a consumer's utility function $U(\boldsymbol{x})$, I know the budget constraint $\sum P_i x_i \leq M$, I am able to compute the ...
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Different elasticities of substitution
I have been reading into generalizations of the concept of elasticity of substitution for more goods/inputs and three main possibilities emerged:
Hicksian EOS
Allen-Uzawa EOS
Morishima EOS
HICKS
As ...
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Why is the supply function the first derivative of the profit function in the long run?
We have the profit function of the firm profit = $p^2 -2p -399$.
We take derivative of it we say that the output supply function is =$2p-2$
I understand that Profit = q*p - TC
But why do we say the ...
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Subgames in imperfect information games
I have not previously come across three player games and I am trying to solve for the subgame perfect NE/equilibria for the following game, where player 3's decision node is linked to the decisions of ...
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Supply function of a price-taking firm with a quadratic production function
For a firm with the production function
$$Q = 40L-L^2$$
where $L$ is labor and wage $w = 20$ find supply function of a price-taking firm under perfect competition. Fixed costs equal $10$.
Following ...
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Positional externalities - Are marketing and higher education examples of market failure?
As Mankiw explains in chapter 10 of the latest edition of Economics (chapter 9 in the previous few, I believe).
Positional externalities lead to "a professional squash player getting the extra ...
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What is the budget constraint when we assume a common utility function?
Let's consider an exchange economy with two identical consumers. The
common utility function is:
$$u^i (x_1, x_2) = x_1^α x_2^{1-α} \;\;\; \text{for} \;\;\; 0 < α < 1.$$
Society has 10 units of ...
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Finding Walrasian equilibria when Walrasian demands are not unique
I'm trying to solve the following excercise:
Find the Walrasian equilibria for a pure exchange economy where agents' ($A$ and $B$) preferences and endowments are given by:
$u_A = x_A + y_A$
$u_B = 2 ...
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Why is there a Walrasian Equilibrium if excess demand goes to infinity as price goes to 0?
In one exercise, we have to argue that a Walrasian Equilibrium exists and the solution says that if we can see that excess demand goes to infinity as price goes to 0, and as price goes to infinity, ...
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Marginal utility vs Total utility [closed]
If marginal utility is positive, consuming an additional unit of a product will cause total utility to decline. Is that statement true and why?
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reservation price
How do i use reservation price to determine when the car ride is the best option?
Assume we have utility function $$U(x_1,x_2)=4x_1^{0.5}+2x_2^{0.5}$$
and we have income $m=20$. If you stay in ...
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Does local non-satiation hold for this problem?
I am getting some confusing results solving this problem:
$max_{c_0\geq0, c_1\geq0} \bigg\{EU = R(1-c_0) [p t_1 + (1-p) c_1^{-2} t_2] \bigg\} ~ s.t. ~c_0+c_1 \leq 1$
where $p$ is the probability of $...
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Constructing Valuation As a Function of Condition
Suppose there is an item that deteriorates with use, its condition expressed as a number between $0$ (completely broken condition) and $1$ (perfect condition), for which I want to assign a monetary ...
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Determine for which prices and income the constraint is binding
Under what conditions constraints start to bind and how to find it
I was trying the following optimization problem:
$$ \mathscr{L} = x_1 x_2 + x_2 + \lambda(M-P_1 x_1-P_2 x_2) + \mu x_1$$
The thing is,...
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Conditions on turnover as a function of number of sales to be a concave function
Suppose I have a customer base of size 100. An arbitrary customer has a private valuation for my product, which shall be represented by the random variable $X$. (Suppose $X$ takes on values between $0$...
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What is the difference between preferences of the producer vs the consumer?
The book I am working with (Rubinstein) states that in the case of the profit-maximizing producer, preferences are linear and the constraint is a convex set. Meanwhile, in the consumer model, ...
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Truth behind Samuelson's statement against elasticities
I found the following statement by Paul Samuelson:
Through the influence of Alfred Marshall economists have developed a fondness for certain dimensionless expressions called elasticity coefficients. ...
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How to rationalize the following behaviors using preference relations?
The producer wishes to produce at least $y^*$ units. Once he has
achieved that goal, he maximizes profit.
The producer maximizes profit, but already employs $a^*_1$ workers
and will incur a cost c (...
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Universal Basic Income (UBI) policy proposals optimal hours worked and consumption
can someone please help me check my work for this question? I want to make sure I did it correctly.
Question:
Work:
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What are the conditions to determine whether demand function is rationalizable?
A consumer chooses a bundle (z, z, . . . , z) where z satisfies $z Σp_k = w$.
The book (Rubinstein's) states that the demand function x(p,w) can be rationalized if there exists a preference such that ...
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What does it mean if the derivative of the Utility function (at the optimal bundle) is 0?
It states in my book that under strict monotonocity, the derivative of U(x*)=0 can be possible although it's unlikely to happen.
What does this exactly mean?
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Deriving the constant relative risk aversion utility function
Here is the question I am trying to tackle:
Suppose that we are given a utility function $u$ with relative risk aversion $R_u$. Show that $R_u$ is constant and equal to $\rho$ iff there exist $\zeta\...
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What does differentiability of Utility function at an optimal solution x* mean?
I am working with Rubinstein's book. It states there that if preferences are differentiable, then value per dollar at a bundle of a commodity is as large as value per dollar of the bundle of any other ...
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Estimating Share Coefficients of Utility Function for a Calibrated CGE
Been reading The Textbook of Computable General Equilibrium (CGE) by Hosoe et al as a bit of side interest later in life.
Much of the book (and the CGE set-up generally) obviously follows naturally ...
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Help with checking work for preferences over consumption and leisure question
I was wondering if anyone could help me check my work for the following question, and if I am wrong, help me correct my mistakes?
Question:
Work:
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Can strict preference be represented by Utility function if not complete?
The definition states that a Utility function represents the preference relation because the relation on R satisfies transitivity and completeness. Yet, strict preferences (and indifference ...
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Incidence of cap and trade [closed]
Is there a way to show the incidence of cap and trade in a diagram? Similar to how in an indirect tax graph you can show consumer and producer incidence. I assume that the consumer incidence of cap ...
user43605
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Questions regarding Solving Melitz (2003) model
I am editing my question regarding solving the model in order to be more specific.
Regarding the demand side, In the beginning of the model, we have a CES utility function over a continuum of goods
...
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Trade and Opportunity Cost
This is a question on opportunity cost. I had problem in solving the last part. Please help me out.
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Composite good and preferences
Usually in economics, we could see some versions of multiplicative utility:
$$U(\boldsymbol{x}) = x*y$$
The thing is that most of the time an additional statement is given that $y$ is some composite ...
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How to determine elasticity of demand when equation has more than one variable
How should one go about determining the own price elasticity of demand of the following:
Assume that the market demand for barley is given by: Q=1,900−4PB+0.1M+2PW
, where Q
is the quantity of barley ...
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Can a preference relation not satisfy monotonicity and still be represented by an Utility function?
The book I am working with (Microeconomics Theory by A. Rubinstein) states that:
"In the case that preferences are represented by a utility function, preferences satisfying monotonicity (or ...
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1
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Can the following statement be rationalized if it yields a choice function?
A person choose an alternative to maximize another person's suffering.
I thought we could define a sort of relation where the person suffers more from x than y. And if we can always do this, we can ...
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Can the following behavior be rationalized if it yields a choice function?
The decision maker has an ideal point in mind and chooses the alternative closest to it.
I am not sure if I am right, but in order to rationalize it, we first have to construct a choice function. So, ...
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How to create a composite good?
Let's say I would like to create some composite score for multiple of goods...
EDIT: More concise version based on @BrsG comments... I would come up with the following scenario. I have a consumer with ...
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Kuhn-Tucker(KT) conditons EMP
How should I formally solve the expenditure min.problem (EMP) by using KT conditions?
Since I should follow the notation of the Mas-Colell, I should write:
$\min~$ $p \cdot x$ , s.t. $u(x) \ge u$
...
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Do Aggregated consumers make sense?
Aggregated consumers as a biased concept (in case of cross-price elasticity)?
I try to approach aggregated consumption data as if it was a new consumer (similarly to approaching average data as if it ...
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Competitive equilibrium vs Pareto optimal
What's the difference between competitive (or Walrasian) equilibrium and Pareto optimal equilibrium. Is a price equilibrium with transfer a competetive equilibrium?
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Average Revenue Curve
In the Average Revenue curve for a firm in perfect competition the average revenue is equal to the price of the commodity at all units of output sold.This is because the average revenue is equal to ...
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Solving Lagrangian FOCs: a few difficulties
I have an optimization problem from microeconomics that yields me the following first-order conditions based on a Lagrangian:
$ p_1 = \lambda \qquad(1)$
$ p_2 - \lambda (x_2^2+x_3^2)^{-1/3}x_2=0 \...
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Basic concept of revenue
Why is it said that the Average revenue of a given output is said to be equal to the price(Perfect competition)? Is it true when the price of each output is not constant and consistently changes?
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Challenging question in microeconomics - local nonsatiation
I'm studying advanced micro from the Mas-Colell book (exercise 16.C.1)
I was wondering if anyone can help me to solve the following exercise. I have no idea how to deal with it
Show that if a ...
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If I were to talk about the unemployment rate of a county in a country, is it microeconomy or macroeconomy?
I have a project to do for school at macroeconomy and I want to know if it's correct to talk about the unemployment rate of a county(if this is micro or macro economy).
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why is diamond an inelastic good?
I understand that since diamonds are valued as rare, high-value items in society, even when the price for them increases, the quantity demanded remains the same. That is, people are willing to pay ...
