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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Terminology for separability in price and value

Take an agent with mean-variance utility over something that is uncertain: $$ U(x) = \mu_x^\theta - \sigma_x^\lambda $$ $A\in \{0,1\}$ happens if $U(x)>0$, and $x$ is a random variable $$ A = \...
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48 views

Firms Entry/Exit Due to Economic Profit in a Perfectly Competitive Market

According to the textbooks,in a long run equilibrium, the market price will be equal to the minimum point of firm's ATC curve. But every firm's ATC curve will differ i.e each one of them will have ...
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96 views

Technology, Prices, and the Derived Demand for Energy

I was reading the paper by Berndt and Wood (1975), "Technology, Prices, and the Derived Demand for Energy". It was an interesting paper to read but there has not been anything done on this in nearly ...
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83 views

How can I model immigration and xenophobia economically using these equations?

I'm trying to put together a toy model for immigration ($I$), labor prices ($w$), and a measure of xenophobic/nationalistic sentiment ($A$). What I've come up with so far is the following: $$\frac{dI}...
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85 views

Price discrimination

If I have 3 consumers who I want to sell package 1, 2 and 3 to respectively. Meaning consumer 1 I would like to sell package 1 to, consumer 2 I would like to sell package 2 to and so on. The packages ...
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77 views

Increased inflation rate on borrowers and lenders

I'm trying to understand a concept in microeconomics. So if inflation increases while nominal interest rate stays the same, what are the substitution effects and income effects on borrowers and ...
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101 views

Metric for evaluating sales with dynamic pricing

Suppose you have a sausage maker. He buys batches of ground meat, then makes and sells sausages. Suppose each batch of ground meat makes N sausages, and each batch has specific level of quality that ...
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22 views

Perfect complement outputs with each output being composed of substitutable inputs

How does one solve the following maximization problem? $\underset{K_1, K_2, L_1, L_2}{\text{maximize }} min\{K_1 + L_1,K_2 + L_2\}$ subject to $c(K_1 + \mu K_2) + \beta c(L_1 + \mu L_2)$ where $c(...
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21 views

Microeconomics and management science of professional open source companies?

Are there research (and stories more broadly) about professional open source companies? To what types of products their are appropriate, what licensing schemes to choose? How to managed patents and IP?...
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49 views

Can the Goodwin Model of cyclical labor growth be applied in a micro context to specific industries?

I have been doing a bit of research into the Goodwin Model (1967), which generates cycles of economic activity. I understand that this is mostly used in macroeconomics. However, I am curious if this ...
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50 views

What is the name for this turn-based property trading game?

Does anyone know what the following allocation strategy is called? Problem: How to allocate N rooms to N roommates? Example: allocate 4 rooms (1,2,3,4) amongst 4 roommates (A,B,C,D) total rent of $...
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Where to start, to know the cost, in hours of work, necessary to produce one more car (or any other good)?

Let's say I want to buy a car. It costs that, so I can know that, for example, I have to work 3 months to pay for it. But does the car really needs three months of human work to be build? What is the ...
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18 views

competitive equilibrium with density functions

Assume there are two competitive markets for goods a and b. Each consumer will either purchase one unit of a and none of b, or one of b and none of a. Consumers never consume both goods. Utilities are ...
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455 views

How to compute Social Welfare in this model?

The first part of this scientific article analyzes reward-based crowdfunding. The assumptions are: Seller is a monopolist Unit mass of consumers Unit demand Two periods Individuals are identified by $...
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248 views

How Would a Firm Which Produces a Giffen Good Maximize Profits?

I am curious as to how a firm which produces a giffen good would maximize profits? Having an upward sloping demand curve seems to imply that we cannot guarantee that there exists a quantity where ...
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840 views

Shape of Isoprofit Curves for Strategic Complements

Two goods are strategic complements if: $$\frac{\partial \pi_1}{\partial q_2}>0\;\text{and}\;\frac{\partial \pi_2}{\partial q_1}>0$$ The image below is a picture of best response functions and ...
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39 views

What are the currently accepted methods to estimate a firm's productivity?

While there are a lot of methods one can think of, like computing the ratio of profits to assets or profits to sales, apparently it is a difficult problem. It would be useful to know how effectively ...
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37 views

How do environmental deregulations push an economy inside its Production Possibility Frontier and make it inefficient?

I read in a textbook that if we plot a PPF with automobile manufacturing and clean air as the axes and the company pollutes the state making clean air (a public good) scarce, automobile manufacturing ...
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114 views

Why shouldn't the relative prices change in the Heckscher-Ohlin model?

I'm having trouble with the Rybczynski theorem. Let's say there's a migration to the domestic economy, increasing the Labor endowment. It states that the production of the good that uses labor more ...
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22 views

Is there a simple way to write a model with firms/sectors with different demand elasticities?

I would like to write down a model where there are firms with different demand elasticities: For some firm's total profits increase and decrease a lot with increases and decreases in demand for their ...
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262 views

Robinson Crusoe economy with saving and borrowing

I am working with a Robinson Crusoe economy, i.e. an economy in which there is no production and only consumption is possible: there are only two goods, $x_1$ and $x_2$. There is just one individual ...
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139 views

Existence of a Competitive Equilibrium

My professor gives us these conditions for the existence of a Competitive Equilibrium (CE) in a pure exchange economy: $U^i$ is continuous, strictly increasing and strictly concave for all $i$ and $\...
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441 views

Calculating a cross price substitution/income effect

I am given a utility function $U(x,y)$, income $I$ and prices $p_x,p_y$. Then the price of $y$ rises to $p_y' = 3 \cdot p_y$. How are we supposed to calculate the substitution effect and income effect ...
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60 views

Stiglitz 1976 on irrelevance of corporate financial policy

In this paper, Stiglitz gives a verbal argument as follows: Let us consider verbally what actions of the individuals are required to offset various actions by the firm. Assume the ...
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80 views

A high store loyalty indicates what kind of competition among cement retailers selling products of the same brand?

To provide some context, this question occurred to me while I was considering the cement retail market. If one considers retailers selling cement of only one brand, then the concept of brand loyalty ...
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61 views

Market with substitutes: Response of prices and quantities

The demand function for theater tickets is $D_t(p_t,p_c)$, where $p_t$ stands for the price of theater tickets and $p_c$ stands for the price of cinema tickets. Supply of theater tickets is described ...
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56 views

Separate optimization problem versus one big Lagrangean

I am a bit confused about when to consider a separate optimization problem and when to combine different problems into a single optimization problem. Consider an individual who derives utility from ...
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162 views

Microeconomic Model of Knowledge and Technology

Can you point me to any microeconomic models of knowledge and technology? It is intended to be used for simulation. The problem that arises is that you need to simulate the effects of technology on ...
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272 views

Convex consumer preferences

Man has blue and red marbles. If he has more red marbles then blue one he wants to exchange one red for two blue($1R:2B$). If otherwise (more blue then red)he wants to exchange one blue for two red($...
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1k views

A stable equilibrium with demand and supply?

My doubt pertains to something that is mentioned in the book by Koutsoyiannis for microeconomics (in the chapter for general equilibrium). http://www.upload.ee/image/5306829/1.jpg http://www.upload....
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311 views

Curvature of Cost and Production Function

I have been trying to understand the duality theory between cost and production function. Please let me know if my following statement is correct; If the cost function $C(w,q)$ is convex in $q$, the ...
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86 views

how can devaluation of a nation's currency lead to increase in government expenditure, hence facilitating economic growth

how can devaluation of a nation's currency lead to increase in government expenditure, hence facilitating economic growth. I was reading through a textbook and saw that the devaluation of a nation's ...
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29 views

Business agreement design - is there science behind this?

I am working on schemas how advertisement space is sold to the ad agencies, ad networks and individual customers. There are lot of questions involved how to design the business agreement. E.g. one can ...
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34 views

Question about nested input requirements

In Michael Carter's "Foundation of Mathematical Economics" we have the following exercise: Prove that the input requirement sets are nested. That is, prove that $V(y') \supseteq V(y)$ $ \forall $ $y'...
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413 views

Semi Annual Deposit that earns 5% Compounded Quarterly

I was asked: A man planned to endow 1000000 USD to his son on his son's 21'st birthday. How much is his semi-annual deposit in a special account that earns 5% compounded quarterly if the first ...
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29 views

Impact of Economic Crisis on Supermarkets And Chemists?

In the undergoing Greek financial crisis, I’ve heard more than once that the three prime sufferers in any economic crisis are the 'bankers', 'supermarkets 'and 'chemists'. I do understand why the ...
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304 views

Given Cobb-Douglas production functions for 2 factories (same owner), how will the owner produce $y$?

So my question is this: A company owns two factories, A and B, each with the following production functions: $f_A(x_1,x_2)=x_1^{\alpha}x_2^{1-\alpha}$ $f_B(x_1,x_2)=x_1^{\beta}x_2^{1-\beta}$ Now ...
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74 views

Implementing Coasian bargaining to achieve social welfare

In this excellent answer, Ubiquitous elaborates on the Coasian solution as an alternative to Pigouvian subsidies. I wanted to explore and understand the solution a bit further. Consider the setting ...
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430 views

Altruism and locally non-satiated preferences

Is there an altruistic utility function that cannot represent a locally non-satiated preference? As an example of an altruistic utility function: $U^1(x^1,...,x^H)=u^1(x^1)+\sum^H_{j=2}U^j(x^j)$, ...
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26 views

Where can I find quarterly/monthly medicare/medicaid state level drug utilization data

I read a paper titled 'State generic substitution laws can lower drug outlays under medicaid'. It uses quarterly state level medicaid drug utilization data. However, I could only find yearly data at ...
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1answer
56 views

Sequential price setting SPNE

Firms A and B are in an oligopoly. They both face the linear market demand curve $X=A-\alpha P$, where $X$ is total market demand, and $P$ is price. Assume constant marginal costs $C_{A}$ and $C_{B}$, ...
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1answer
67 views

Elasticity of subsitution: a redundant calculation?

Elasticity of subsitution is a measure of the curvature of an isoquant1 and can provide us information regarding the nature of the production functions we are dealing with. this is visualized in ...
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1answer
337 views

Do you get economies of scope from horizontal or vertical integration?

Economies of scope: make it cheaper to produce a range of products together than produce each one on its own as company can share inputs (e.g marketing and finance) removing cost redundancy Would ...
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1answer
49 views

Necessary conditions for the existence of a competitive equilibirum

I got that in an exchange economy, conditions as preferences being continuous, strictly convex and strongly monotone and $\sum_i \omega_i\gg 0$ are sufficient conditions for the existence of a ...
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1answer
61 views

Scarcity in Relation to Free Goods

This is a basic economics question about scarcity in relation to free goods. The hypothetical question is that if iTunes decided to have free streaming for all their songs, would there still be ...
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How to calculate substitution and income effect when only 1 bundle is given?

I was given information of a consumer that initially consumed 4 units of both good x and good y with the initial price of $5 for both goods (px = py = 5). The initial budget constraint is 40 = 5x +5y ...
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28 views

Why do vacationers spend more on food and essentials than the locals?

I cannot think of an answer to this question from the chapter on elasticity in Tyler Cowen and Alex Tabarrok's Modern Principles of Economics, Second Edition: How might elasticities explain why ...
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1answer
49 views

What will giffen goods and Veblen goods peform in general equilibrium model?

I'm a beginer of microeconomics. According to consumer behavior theory, a consumer possesses a set number of money as budget constraint at first. And their is negative income elasticity of demand and ...
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26 views

Finding simple multiplier using G,Y,P,W

Let us say the estimated equation for the economy’s aggregate demand is Y = 400 – 15P + 8G And the estimated equation for the economy’s aggregate supply is Y = 5 + 11P – 10W where Y is the country’s ...
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45 views

Short, Medium and Long-Run Profit Maximization

Suppose that, in a perfectly competitive industry, the firms' technology have the following cost function: $C(x) = 100 + 3x + 0.04x^2$. Assume the fixed costs are sunken. a) If the demand for the ...

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