# 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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### Difference between Opportunity cost and marginal cost

I understand that the marginal cost is the cost of producing one additional unit of a good or service. Is it correct to say that the opportunity cost is part of the marginal cost (I'm trying to ...
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### Does quasi-concave utility function imply convex indifference curve?

It is well-known that convex indifference curve (i.e. the function is convex)/ preference would imply quasi-concave utility function. But does quasi-concave utility function imply convex indifference ...
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### profit-maximization

I'm having trouble on my homework and I need some help. A company sells products in a perfectly competitive market, where the price is $p = 24.$ For each of the following cost functions, write down ...
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### Utility function is given as U(x1, x2) = 10x 0.5 1 + 5x2

Given a utility function $U= {10x^{0.5}} + 5y$, calculate the MRS and explain its economic meaning. The MRS I calculated is $\frac{1}{\sqrt{x_1}}$, but I can't really understand it's economic meaning ...
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### discount factor, function, and rate

Consider an exponential discount factor $\delta\in(0,1)$. Similarly, consider an exponential discount $\textit{function}$: $g(t)=\delta^t$. Then, is defining the discount $\textit{rate}$ as below a ...
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### The beta delta model

What is the $\beta$-$\delta$ model? How does it relate to present bias and the present value calculation?
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### In perfect competition, why is there economic loss if marginal cost > marginal revenue?

Here's a graph for reference: In the left graph, I read from a book (CFA L1 notes) that At any output above the quantity where $MR = MC$, the firm will be generating losses on its marginal ...
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### What is excess demand/ excess supply?

I've been reading up on Walras' Law and thought I understood it pretty well. However one of my friends asked me point blank what is an example of excess demand or excess supply is and I had some ...
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### Graduate level texts/notes that cover the Short Run and Long Run Costs of firms' production

In undergrad econ we learned that it would cost a firm more money to increase its production in short term than in long term. MWG does not seem to cover this topic. I need a Graduate level texts/...
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### how to raise utility of an individual having min utility function

I was doing an exercise of utility and got confused with a min utility function. endowments can redistribute among individuals. How am i supposed to increase his utility. Can i simply reduce the ...
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### Books on Technological Progress and Growth

I've done some google search for good, reader friendly albeit technical, books on technological progress/change and economic growth. However, I've not found what I want. If you are using or have heard ...
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### What are examples of inversely (negatively) correlated stock prices in economics?

I’m looking for example of two goods/wealth that demonstrate inverse/negative correlation. For example if price of A rises then price of ...
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### Does the contract curve always have to connect the initial points on an edgeworth box? Why or why not?

What if the contract curve goes out of bounds? In that case, do I assume it superimposes itself on the axes it is closest to? I hope this was clear. Not sure how to explain this other than visually......
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### Why do firm output decreases when fixed cost decreases in Long Run?

So in long run if fixed cost is lowered, more firms enter the industry and increase the supply, bringing up industrial output. According to the firm diagram, Average Cost lowered so that the firm ...
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### Definition of a 'Competitive Firm' and a 'Perfectly Competitive Firm'

In many of my intermediate microeconomics quiz and test questions I encounter the term "competitive firm" and/or "perfectly competitive firm", e.g.: In the short run, a perfectly competitive firm ...
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### Why is the definition of opportunity cost “the benefit of the best alternative choice” but not “the benefits of all alternative choices combined”?

What is the rationale behind it?
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### Increase in the price of skateboard wheels cause a decrease/no change in the demand of skateboards? (2 separate markets w/ 2 separate buyers)

Would an increase in the price of skateboard wheels cause a decrease/no change in the demand of skateboards? (2 separate markets with 2 separate buyers) Note: I'm going to be mainly focused on the ...
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### How can I build a fixed point theorem argument in pure strategies?

To begin with, I am recalling the Banach Fixed Point Theorem. Let $(X,d)$ be a non-empty complete metric space with a contraction mapping $T:X\to X$. Then $T$ admits a unique fixed-point $x^*$ in $X$ ...
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### Proving ranking using completness and transivity

The book by Jehle and Reny says that one can proof the ranking of consumption bundles using the axiom of completness and transivity. But the have not proved this in the book and I also have a hard ...
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### Deriving long-run cost functions from production function

Suppose that I have a production function $(aK + bL)^3$ in a perfect competition where a and b are constants. I am confused on how to obtain the long-run cost function from this production function ...
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### Intertemporal budget constraint notion

Let $W$ denote the investor's wealth $B$ is the the investment in the risk free asset (suppose that the risk free rate is taken to be zero) and $X$ is the investment on the risky security which has ...
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### How does one asses the impact of a proposed policy?

My State government is considering a new regulatory policy at the moment. We need to put together an assessment of the (likely) economic impacts of the policy. How do we do that? I don't work for ...
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### Contribution to change of a ratio with 3 terms

I have a micro dataset of firms' financial liabilities for 15 years. I would like to plot the contributions to change in leverage, decomposing the single contribution of bank loans, bonds and equity ...
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### Why exactly does a perfectly competitive market depend on consumers having perfect information about a product?

My book states that one factor defining a perfectly competitive market is its participants having full information about prices and product characteristics. I can understand how having perfect ...
18k views

### Why should marginal cost be equal to the price an item is sold at? [closed]

My interpretation of the condition $P=MC$ is that a firm's cost of producing one additional good should be equal to the firm's price. This means that the next item a the firm produces won't yield any ...
768 views

### What's the significance of the triangular region for calculating the deadweight loss?

I am familiar with the concept of deadweight loss but I can't deduce the significance of the triangular region we consider deadweight loss as. I mean what's the issue with taking the deadweight loss ...
1k views

### Violating WARP or not? [closed]

If the only information we had about Goldie were that she chooses the bundle (6, 6) when prices are (6, 7) and she chooses the bundle (10, 0) when prices are (5, 5), then we could conclude that a. ...
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### Could lexicographic preferences on N^2 be represented by a utility function u: $N^2$ to $Z$?

I got this question on a homework: Could lexicographic preferences on $N^2$ be represented by a utility function u: $N^2$ to $Z$? I've heard countless times that lexicographic preferences can't be ...
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### Prove that Choice Coherence Implies IIA

Prove that Choice Coherence implies Independence of Irrelevant Alternatives (IIA). From the definition of choice coherence, we have this: A choice function c satisfies choice coherence if, for every ...
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### Increased production costs associated with increased output produced? Why do firms have prices increase with the SRAS or Supply Curve?

In my textbook, it said (this is for SRAS and AD, but I'm also going to apply this a bit fo microeconomics.. sorry for mixing, but my question applies in both ways, I believe) "The average price ...
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### Where can I find economics theories to learn about? [closed]

I'm a beginner to economics so I do not have much knowledge. However, I enjoy learning new economics theories. For now, I normally search for economics theories by looking at those that won nobel ...
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### Derive the Hicks demand function for $U(x_1,x_2) = x_1^{1/2}x_2^{1/3}$

Consider the utility function $U(x_1,x_2) = x_1^{1/2}x_2^{1/3}$ and the budget line $p_1x_1+p_2x_2 = m$. Then I have to find the Hicks demand function. I know that to do this I have to solve the ...
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### How to prove that a function is a positive montone transformation

Consider the utility function $$U(x_1,x_2) = x_1^\alpha x_2^\beta$$ for $0 < \alpha, \beta < 1$. How do I then show that  V(x_1,x_2) = F(U(x_1,x_2)) = \frac{\alpha}{\beta} \ln(x_1) + \ln(...