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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Solow Model - speed of convergence
This is a question also for those with a good expertise in micro. For micro guys who wanna go streight to the question, just jump to equation $(1)$
I'm studying the Solow growth model.
Let's write the ...
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Inflation adjustment: CPI less than one
I need help on how to adjust my figures by inflation.
I have two pieces of data. The first one is a company's nominal expenditures during the 2015-2020 period:
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Measuring value added per capita technique (Macroeconomics)
I am reading this paper, and in the methods section, the authors define manufacturing value added per capita as, "For example, manufacturing value added per capita is equivalent to manufacturing ...
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Calculating deadweight loss from tax for a monopolist
A monopolist has cost function $c(y) = y$ so that its marginal cost is constant at 1 per unit. It faces the following demand curve $D(p) = \begin{cases} \frac{100}{p}, &\text{if}&p ≤ 20 \\0,&...
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Understanding the "But they will lose jobs!" argument
Suppose there is some industry whose profit is based on unethical business practices. Eg: A pest control company X, who themselves send pests into people's houses, so as to later earn money from ...
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Slutsy Equation and Income effect
Does the Slutsky equation always assume optimal levels of our variables, hence Marshellian demand = Hiscksian demand $x = h$ as indeed this is how the Slutsky is derived?
I originally thought this ...
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Textbooks for Teaching Intro Micro (Principles): What are the tradeoffs?
As a new AP, I'm assigned to teach Principles of Microeconomics. Different teaching mentors I've asked about course materials have mentioned different texts, but I'm having a hard time getting a sense ...
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Firms choosing upgrade & minimizing choice
Imagine hypothetically, there is a firm that has two option for production technology:
f(z) = √z but also the option to increase efficiency to g(z) = 2√z but this choice includes fixed cost F > 0.
...
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Derive cost function from production function
proportions production function as follows:
where the price of input is 1 and z2 is supposed to be a fixed factor of production. I've been having trouble finding the cost function because if z2 isn't ...
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Modelling the inefficiency of redistribution in case of proportional taxation and lump-sum subsidy
I would like to model the following situation in the simplest possible way.
First, a government imposes a proportional tax on the whole population, say, x% of income for each household.
But then, it ...
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How to calculate the maximizing number of firms in a Cournot competition?
I am trying to figure out the answer to the following two questions with given context:
'In a scenario in which there exist multiple identical firms with a large supply of products available, each ...
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How to calculate the long-run equilibrium of firms in a Cournot competition?
I am trying to solve the following question:
'In a scenario in which there exist multiple identical firms with a large supply of products available, each firm must decide how much to provide to the ...
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Combined PPF (Equal quantities) & Combined PPF (Specialization)
I thank anyone who answers in advance.
I am taking a beginner microeconomics course and I am stuck on a question. I understand all the parts but the question they are asking is slightly different than ...
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Portfolio choice and risk aversion
Given utility function $U(w) = -e^{-w}$ of an investor (where $w$ denotes wealth) and two assets - risky and safe, will the investor's amount of investment into the risky asset be indifferent of his ...
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How does a lack of incentive to purchase new stuff affect economics?
How does a lack of incentive to purchase new stuff affect economics?
I've perceived as if a lot of economics is rooted in the idea of continued innovation and consumption, but then I've realized that ...
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Solve long run production function of a firm using technical rate of substitution
I don't understand the solution to a question which deals with the long run production function of a firm.
The question is:
Suppose a firm has a production function $f(x_1, x_1) = x_1^{0.5}x_2^{0.5}$, ...
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Understanding the Nash equilibrium for quadratic utilities
I need help to understand some steps of the article "Who's Who in Networks. Wanted: The Key Player" and I would greatly appreciate if someone can provide me with references or if they can ...
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Sellers and warranty
Suppose there are two sellers $\{H, L\}$ such that $H$ sells high quality products at $\\\$ 8000$ and $L$ sells low quality products at $\\\$ 5000$. The customers value the products at prices $\\\$...
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Screening models with multiple goods and interacting costs
I'm looking for a reference in the literature on monopolistic screening/mechanism design, where there are multiple allocative variables and these interact in the agent's utility function.
For example, ...
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Maximization of CD production function
I was reading the paper "Optimal Investment Under Uncertainty" (Abel, 1982). At one point the author addresses the following problem:
$$\max_{L_{t}}\left\{ p_{t}L_{t}^{\alpha}K_{t}^{1-\alpha}...
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Suppliers holding back production in expectation of better price in future
Anthony’s Ephemera Emporium sells signed photos of cryptids like Bigfoot, chupacabra, and other mythical creatures. These photos are substitutes in production.
If Anthony expects the price of signed ...
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Hardcore elasticity of substitution (bad results)
I have a following function and would like to find the elasticity of substitution between pairs:
$$U = \left( x_1^\delta + x_2^\delta + x_3^\gamma + x_4^\gamma \right)^{\frac{1}{\delta + \gamma}}$$
...
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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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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 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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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: