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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Why are we comparing the ratios of MPL to price of labor and MPK to price of capital not ratios of MPL and MPK to price of labor and price of capital

Question: A firm produces chairs using labor and capital. The price of labor is \$50 dollar per unit, and the price of capital is $100 per unit. At current output, the marginal product of labor is 10 ...
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Auction and best response

Consider an auction in which $k$ identical objects are sold to $ n>k $ bidders. Each bidder $i$ needs only one object and has a valuation $v_{i}$ for the object. In the auction, simultaneously, ...
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Why are prices considered the best information we could have?

We often talk about information as pricing being the best information or reflection of different aggregate pieces of information existing on markets. Why do we then also often hear that some prices do ...
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Help with a choice under uncertainty exercise [closed]

Let $u$ and $v$ be utility functions (not necessarily VNM) representing $\succsim$ on $\mathcal{G}$. Show that $v$ is a positive affine transformation of $u$ if and only if for all gambles $g^1, g^2, ...
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Game Theory Question

| | |Adv| ---------|N\A| Adv| 300,300 | 900,0 | N\A| 0,900 | 700,700 | Player 1= Pepsi Player 2= Coke A) Solve for the pure strategy Nash equilibrium B) Is this ...
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Utility Function

Here is an excerpt from a journal article: "A solicitor's input decision on a given case can be thought of as a labour supply decision, with the movement towards standard fees altering the budget ...
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181 views

Is car accident/theft a fair bet? [closed]

A person with a current wealth of 100,000 who faces the prospect of a 25% chance of losing his or her 20,000 automobile through theft during the next year. Since there is no upside to this event and E(...
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Effects of shocking budget or indifference curves on optimum point?

I am supposed to determine if shocking either the income or preferences would certainly change the optimum solution in case of a corner solution?
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Difference between NPV and PDV

What is the difference between Net Present value and present discounted value when periods are given in infinity $\infty$ . Both are then equal to $\frac M r$?
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Optimal consumtion bundle of lemons and sugar [closed]

Alex consumes only lemons and sugar. For each lemon he requires exactly 2 spoons of sugar. He doesn't like more sugar on his lemons, and he won't eat lemons with less sugar. What is Alex's optimal ...
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Would you consider airport parking to be a monopoly or a monopolistic market?

If you look at it one way and group the different companies that offer parking, it could be a monopoly as that is the only place you can park. On the other hand, the different companies offer ...
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Is perfectly inelastic demand always coupled with inelastic supply?

In the case of perfectly inelastic demand, the price is always infinite. Does it mean that the supply curve is also inelastic?
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Derive the Cost Function TC(Q)

Suppose $F(K,L)= 50L^{\frac{1}{2}}K^{\frac{1}{2}}$, the wage is $w = 5$ (euros) and rent is $r = 20$ (euros). What is the cost of producing $1000$ units? Derive the cost function $TC(Q)$. I know ...
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Doubt regarding Walrasian equilibrium with complements for both agents

There are two goods $1,2$ and two agents $ 1,2 $. Both have the utility function $ u_{i}=\min({x_{1i},x_{2i}}) $ for agent $i$ .The endowments are $(1,3)$ and $(3,1)$ for agent $1$ and $2$ ...
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Calculate Elasticity of demand in this example [closed]

Suppose that house prices increase by 10%, and the total quantity of homes purchased decreases by 8%. What is the elasticity of demand of housing? Interpret your answer in the context of a 1% change ...
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Which of the following explains that the price increase of oil cause the price of natural gas to increase?

A) Oil is inferior good while natural gas is normal good. B) Both of them are normal good. C)They are substitute goods and the higher price for oil increased the demand for natural gas. D)They are ...
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Consumer Choice [closed]

Which of the following statements are not consistent with the assumption of completeness and transitivity? Explain why. a) I just can't decide whether I would rather take a holiday in Spain or ...
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Utility functions [closed]

$$U_1 = 1 - \frac{1}{x_1} - \frac{3}{y_1}$$ $$U_2 = 1 - \frac{3}{x_2} - \frac{1}{y_2}$$ How would one go about deriving the MRS for such utility functions and what would their indifference curves ...
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Microeconomics: Calculating and Comparing MRS for Various Utility Functions [closed]

I am having a problem determining "which utility function is not like the rest." The following utility functions are: $$U_1(x,y)=x^{2/3}y^{1/3}$$ $$U2(x,y)=3x^2*y+2$$ $$U_3(x,y)=\frac{1}{3}\ln (x)+...
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Indifference curves passing thru few points [closed]

Tommy Twit’s mother measures the departure of any bundle from her favorite bundle for Tommy by the sum of the absolute values of the differences. Her favorite bundle for Tommy is (2, 7), that is, 2 ...
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Are Microeconomics limited to one country?

For my IB Econ internal assessment I want to comment on the falling oil prices across the globe. Would this be covered under Micro because it's 1 specific market? or is it international because it ...
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What does this $(\gamma _{0.clothes} + \gamma _{1.clothes} * \ kids)$ term mean in my linear demand equation?

I have the following demand equation system (expenditure ratio model): $w_{clothes}= \beta _ {clothes} + \alpha_{clothes} * \ kids + (\gamma _{0.clothes} + \gamma _{1.clothes} * \ kids)* \ income + ...
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Having trouble solving system of equations through matrix approach

So I have this system of reaction functions: $$s_1 = 2 + \frac{1}{3} s_2$$ $$s_2 = 7 + \frac{1}{8} s_1$$ I have to solve this through inverse matrix and confirm the result through Cramer's rule. The ...
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What is the main cause of differences in the costs of living?

Following question is not formulated in technical language of economics, since I am not an economist and I am mostly interested in accessible answers. Yet, I think it goes deeply into theory of ...
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Revenues and cost functions

Let's assume that there is a firm that produces a single good, $q=f(x)$, where $x$ is a single input. The firm can sell it on the market at a price $p$. It's production cost is given by a cost ...
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Why does the aggregate consumer spending decrease due to to lower expected future disposable income instead of MPC?

This illustration is from Krugman's macroeconomics textbook, it's supposed to illustrate following situation (assuming that it happened for many people): Conversely, suppose you have a good job but ...
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Help understanding definition of expected utility function

This is the definition of an expected utility function that I'm working with: The utility function $U:\mathcal{L}\to\mathbb{R}$ has an expected utility form if there is an assignment of numbers $(u_{...
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Efficiency in Auctions

Consider a finite number of bidders, each bidding for a single indivisible object, with private independent values from some probability distribution. There are 2 intuitive notions of (ex-post) ...
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Quasi-concavity of profit function

I'm doing a simple exercise from my textbook: suppose the revenue function is $R(p)=p^{1-\epsilon}$ with $\epsilon > 0$. Suppose the cost function is convex. Show that the profit function is quasi-...
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Financial Economics and International Economics

What is the difference of Financial Economics and International Economics? Why, How? What are the implications of these differences? Will a model of international economics suddenly become a model of ...
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Is it possible for a firm does not have shutdown point?

If a firm has a quadratic cost function, is it means that the firm does not have shut down point and never shut down? Are the changes in fixed cost do not affect the firm's shutdown decision?
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Negative long term effects of wage cap, especially on purpose of money?

It can be figured that a wage cap could have some noticeable short term effects - mainly, those who are higher paid will not receive as much money anymore, meaning less spending by the richest in the ...
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Budget Constraint

You have just emerged from medical school with a debt service burden of $25,000 per year, and have set up practice. You have to decide how hard to work . For each hour of work, you expect to earn 50 ...
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How to derive this Hicksian Demand?

So I have this utility function where I need to find t expenditure minimizing value of x. Normally, I would get the marginal utility of goods x and y, but doing that in this case doesn't leave any ...
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K in the Cobb Douglas function

I'm using the Cobb Douglas production function for a Mathematics investigation into how optimisation works in Economics. The assumption is that the firm require's only one type of capital, that is, a ...
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locally nonsatiated preferences

what does this symbol mean in the discuss of locally nonsatiated preferences: $\varepsilon > 0$ and $||y-x||<\varepsilon$.
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What does “r” represent in the total cost function?

I know that the total cost function of a firm in the short run is: TC = wL + rK, where rK is essentially a constant. I understand the variables w, L and K, but I still don't get what r is. I mean, ...
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How to compute Walrasian equilibrium in the case of logarithmic utility?

If the utility is $U = \ln x + 2 \ln y$, how do you compute Walrasian equilibrium via usual formula for demand $x=a(x p_x + y p_y)/p_x(a+b)$ ? What is $a$ and $b$? In case of Cobb-Douglas function ...
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In a production function, the technology can vary across the firms and times. But the “power” must be same for the same industry?

Let $F_t=A_tK_t^\alpha L_t^{1-\alpha}$ be the production function with two parameters. In regression, we know the firm level $F_t$, $K_t$, and $L_t$. We want to estimate $A_t$ and $\alpha$. I've ...
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In the Cournot Duopoly Model,why is the Equilibrium achieved at 1/3 Rd of the Market Share?

I've been reading it for a while,while I do get the action reaction movements,I can't understand as to how the 1/3rd value was reached. Can anyone intuitively or mathematically explain as to how it's ...
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Market impact function

I have the following Dynamical system for market impact function $$p_{t+1}-p_t=a(d_t-s_t)$$ $$s_{t+1}-s_t=bp_ts_t-cs_t$$ $$d_t=y-rp_t$$ where $s_t$ is quantity supplied, $d_t$ is quantity demanded, ...
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NPV but adding last year net value?

I have found the following NPV (Net Present Value) formula: CF = unlevered cashflow i = interest rate (WACC) $$NPV = -I_0 + \frac {CF_{2019}}{(1+i)} + \frac {CF_{2020}}{(1+i)^{2}} +\frac {CF_{2021}}...
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Why does marginal cost slope upwards after the minimum point?

My textbook writes this on marginal cost: "The law of diminishing returns refers to the idea that as more of a factor (input) is used, with at least one fixed factor, there is some point at which the ...
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Is there some definition about risk sharing?

I was searching for a definition of risk sharing and I have found the following: $\underline{Definition:}$ Risk Sharing — also known as "risk distribution," risk sharing means that the premiums and ...
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which is an example of demand curve that is always inelastic/elastic?

Which class of functions have the property of being always elastic?and instead always inelastic?
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Does utility in economics also refer to producer's surplus ? How to balance the consumer surplus and producer surplus?

I am confused about the use of utility in economics and how it relates to allocative efficiency. At 4:35 and 5:07 in this video (https://www.youtube.com/watch?v=9a3wXj1o91k) he talks about how at the ...
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Example which violates weak pareto and non dictatorship

Can you give an example of a social choice rule and a social welfare function that violates the conditions of Weak Pareto criterian and non dictatorship simultaneously?
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Why does average variable cost = marginal cost for this function?

I was hoping someone could explain the following. Suppose the short-run total cost function is TC = 50 + 12Q. Which of the following statements is true at all levels of production? The correct answer ...
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Empirically checking efficiency and equity

I am aware that because of externalities or public goods (or for other reasons) there can be no allocative efficiency on the market. I am also aware that policy makers' subjective judgement of the ...
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104 views

A question about MWG Exercise 3.D.4

I'm doing exercises of Chapter3 of MWG, there's a problem that I don't understand (I didn't figure out the solution manual either...). It is about exercise 3.D.4, the full statement of the exercise ...

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