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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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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Quasi concavity of utility function

I am looking for a method to prove that the following function is quasi-concave in $\alpha$ (or find conditions under which it is true): $ \pi=F(-k)(f(0)^2-f(h(1-\alpha))^2)+ \frac{1}{2}-\frac{1}{2}...
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Why is the labour supply independent of the wage in this case?

Consider the model $\max U = \ln c + \ln l$ subject to $c=Lw$ and $1=l+L$, where $c$ denotes consumption, $l$ leisure, $L$ the labour and $w$ the wage rate. The optimal choices of $L$ and $l$ can be ...
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Individual Firm and Market Demand Curve

In Section 10.2, Monopoly Power, in Pindyck's text on Microeconomics, an example says that suppose $N$ firms produce a particular product and the market demand curve is $P = -aQ + b$. An individual ...
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Is it possible that the minimum point of a short run cost curve does not touch the long run cost curve?

In the answer to this question, the answerer said "the minimum point of a short run cost curve will be above the long run cost curve". Is it true? If so, how would it be so? I thought that if e.g. ...
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Why income elasticity of demand of luxury good in greater than 1?

According to textbook and wikipedia, "if income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a ...
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Who took utimatum game and dictator game as the evidence against Homo Economicus assumption of individual utility maximization?

Wikipedia and this McGill University page states that the two games "have been taken as both evidence for and against the Homo economicus assumptions of rational, utility-maximizing, individual ...
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Derivation of aggregate demand function for Monopolistic Competition (based on Combes et. al, 2008)

A specialized question for those, who excel in monopolistic competition and modern trade theories. I am interested in a derivation of an aggregate demand function for a model of monopolistic ...
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54 views

Sequential game equilibrium strategy question

The question asks for player B's equilibrium strategy, hence shouldn't player B choose the strategy that gives the highest payoff after player A's move? Why does player B choose 4 over 5 and 6 over 8 ...
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Emergence of notion “primitive business” in the era of Industry 4.0 and globalization

It has always been the conventional wisdom that businesses should be fit to survive in the market competition, that only the best businesses can survive beyond horizon of several years, that survival ...
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fixed an marginal cost calculation issue

I'm trying to solve a question that is quite difficult for me. I did part of the question but, bit difficult to decide the exact answer for the below question. After coming up with an innovative ...
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1answer
60 views

What is the reason behind the demand function of a perfect complement good?

so I know that usually the income curve is equal to: $$x_1p_1 + x_2p_2 = m$$ if we rearrange this equation we get that the demand for good one ($x_1$) is equal to: $$x_1 = \frac{m-x_2p_2}{p_1}$$ None ...
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In a perfectly competitive industry, why is apple considered best example of commodity? [closed]

Out of these options, shampoo apples ice cream hotels Why is apple considered to be the best example of commodity in a perfectly competitive industry? And Why not others?
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How can I show whether the following function is Increasing, Decreasing, or Constant returns to scale? [closed]

I need to show whether or not the following function is increasing, decreasing, or constant returns to scale, but I can't figure out how to extract the t from it when it is put in the form $y(tX_1, ...
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1answer
55 views

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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1answer
68 views

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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2answers
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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 ...
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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 ...
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2answers
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 ...
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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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834 views

Mix of two ads types [closed]

Question still unanswered Ads in the boring business magazine are read by 300 lawyers and 1,000 M.B.A.s. Ads in the consumer publication are read by 250 lawyers and 300 M.B.A.s. If Harry had \$4,200 ...
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How to derive the reaction function from these provided variables?

This is the question. I cant seem to reach a concrete solution because of the scarce information. Firm 1 spends 2 million, plus 33.33% on advertising what firm 2 spends on and firm 2 spends $7 ...
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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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1answer
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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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33 views

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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1answer
40 views

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(...
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1answer
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Does the duality of utility maximization and cost minimization hold in practice?

I recently learned about the relationship between utilization maximization and cost minimization. Are there studies on whether this duality holds in real life? Any information on this topic for a ...
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Why the treasury is buying back its treasury securities during the coronavirus economic crisis?

I have read today that the treasury of my home country (not the US) started to buy back a significant amount of its Treasury securities (bonds, notes ...) from their owners. My question is what ...

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