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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Optimizing Lagrangian Function Subject to 4 Input/Output Constraints:

The objective function: $$\text{utility}=U\left(x_{c}, y_{c}\right)$$ subject to, $x_{o}=f\left(y_{i}\right)$ $y_{o}=g\left(x_{i}, x_{o}\right)$ $x_{c}+x_{i}=x_{o}+x^{*}$ $y_{c}+y_{i}=y_{o}+y^{*}$ ...
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How to derive substitution and income effect using Slutsky equation if we don't know which of the prices change?

We have the utility function $$U(x,y)=x + y$$ and we have to derive the substitution and income effects using Slutsky equation. But after I derive the Hicksian demand functions for e.g. x: $$h_x= \...
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How to find the total effect of a price change on the quantity demanded?

I'm computing how the quantity demanded changes after the price change. The task is to maximize $$U(F,G) = F^{1/3}G^{2/3} s.t. 1F+ 2G = 90$$ I get $$F=G=U=30$$ But then prices drop for 0.5 each ...
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23 views

How to prove monotonic transformation of the function and equivalence?

At the microeconomics course I have to prove monotonic transformation of the function U(x,y) = A(x^a)(y^b) into U(x,y) = (x^0.5)(y^0.5) Since the MRS are ay/bx and x/y resp. I can obviously only ...
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Market mechanism design and decision rule based on a graph

I am doing a micro course right now. I came upon this question while studying and I was hoping for help/hints on how to solve it or what resources to consult to better understand the topic. the ...
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Does quantity demanded refer to all consumers or individual consumers?

When looking at points along the demand curve, is each quantity corresponding with each point referring to the total quantity demanded by all consumers in a market or the quantity demanded by ...
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Second welfare theorem problem

I would like to get a better understanding of part c of the following problem. It appears to me that Walrasian allocations do not change but I want to confirm whether I am right or not. Thanks. ...
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21 views

weakly preferred consumer bundles

I am currently studying consumer choice and saw that weak preference refers to when an individual prefers or is indifferent to two bundles (such as bundle A and bundle B). I was wondering what is ...
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22 views

Certainty equivalent and risk premium

I'd like some guidance on the below practice question on uncertainty in consumer theory. I think I am confused on the certainty equivalent & risk premium or I'm not understanding the question. ...
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Who is the first one to equate “rational” with “complete and transitive”?

MWG taught that, suppose that the menu is finite, "rational" is the same as "complete and transitive". But it seems that it does not cite any sources. Who said this first? vNM said in 1944 that their ...
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Is it correct to say opportunity cost is cost of giving up quantity of what you are selling?

In this video (https://m.youtube.com/watch?v=KEYYN-a_x6E), the instructor talks about the marginal opportunity cost and supply curve. (Begins talking about it at after 1:50). He states that the ...
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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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Order of Marginal Effects in Ordered Regression Model

I'm looking to validate my understanding of marginal effects on the probability of an ordered probit model. I don't understand how ME is calculated in respect to some alternatives. For example if I ...
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13 views

How do you calculate the cost of down time in production?

We are looking at a process that will significantly reduce down time in production for (at least) one of our products. In addition to the saved labor and material costs, is there a way to calculate ...
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How to integrate technology lifetime in NPV

I want to calculate and compare the NPV for different ways of producing a good X. The NPV should be calculated for 30 years. The following technologies can be used for production: Technology A, which ...
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Production for multiplant firm?

A multi-plant firm will never produce at a plant with an increasing marginal cost when they own another plant with a decreasing marginal cost. Is this true? My reasoning behind this is that firms ...
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Is the supply of a price-taking firm increasing in price?

Is the supply of a price-taking firm increasing in price? When the price goes up, this means that firms can make more profit. Therefore, they would want to increase their supply. Is there a way to ...
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33 views

Examples of textbook definitions of transaction costs, for a non-econ student

I'm not an econ major, neither am I taking it as a minor, however seemingly out of nowhere economics has jumped into my CS class when talking about the role of IT in reducing transaction costs of ...
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36 views

The assumptions of Rational Expectations Models

What are the assumptions between rational expectations models and how restricted are there for the following results of economic theory? Where can I find them all gathered in some textbook or in the ...
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35 views

Study guide (and…) for “Intermediate Microeconomics with Calculus” by Varian

I have been googling study guides, solution manuals and other helpful material made by professors. But I have not found anything useful. Q: Do you guys know anything that will make the book easier ...
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What is a substitution pattern?

I know what substitution effect is but I am not sure what substitution patterns are. To give some context the author says the following: "I analyze the substitution patterns between exchange ...
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How does definition of “price equilibrium with transfer” also include the case for the definition of “walrasian equilibrium”?

According to MWG and this answer, walrasian equilibrium is a special case of price equilibrium with transfers. However, since wealth distribution is predetermined in walrasian equilibrium, would it ...
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42 views

Special case for wealth allocation with quasilinear utility functions

Building on this question, regarding the answer from Bkay: Is it a general statement that when $m < \frac{p_y^2}{4 p_x}$, all income will be allocated to $x_M$? What about the case when the ...
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How to prove that the substitution effect is negative when price of another good is changed?

In Slutski equation, we have: $$\frac{\partial x_i(p,w)}{\partial p_j} = \frac{\partial h_i (p,u)}{\partial p_j} -\frac{\partial x_i(p,w)}{\partial w}x_j(p,w)$$ If $i \neq j$, the substitution effect ...
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Change in Consumer Surplus with two goods

Suppose we have two goods, price changes in the two are independent; having seen this question I am considering why the change in total Consumer Surplus is the sum of the change in Consumer Surplus ...
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1answer
36 views

What would be the shape of the Indifference curve with slope 1/xy? [closed]

Let the utility function be: $U(x,y) = \log x +y^2$. In this case, the MRS is coming out to be $\frac{1}{2xy}$. Thus, how will the shape look like?
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how to explain the term “Compensated law of demand” in a plain way?

The term “compensated law of demand” I met in advanced microeconomics textbook, which appeared in “revealed Preference “
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Why hipothesis of perfect competition market implies fixed price of a product in every transaction?

My book says that from the axioms of perfect competition follows that the price is fixed in every transaction but it doesn't specify in which way it is possible to prove it. Besides, are all the ...
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11 views

Pricing Cross-Side Platform Mediated Markets

I have a question regarding the optimal pricing strategy for cross-side Platform Mediated Markets. Suppose we have two categories A and B, 100 potential customers each. How do I derive the optimal ...
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37 views

Purchasing Power Parity and Baskets of Goods

On the exact definition and understanding of "purchasing power parity" it depends what it means when the World Bank defines the “extremely poor” people of the world as those who are currently ...
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26 views

Homothetic preferences linear in income [duplicate]

How to prove that $x(p,I)=I \cdot x(p,1)$? I would favor an argument based on showing that these are the $argmax$ to different problems and they coincide rather than using the fact that the MRS are ...
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Would households rather live in a world with or without the unemployment insurance?

Would households rather live in a world with or without the unemployment insurance? What is a good example of world in which unemployment insurance is seen as a benefit, and not a hindrance?
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How to prove that the walrasian demand function $x(p,w)$ is continuous in $p$ and $w$?

If the utility function $u$ is continuous and satisfies local nonsatiation, and walrasian demand function $x(p, w)$ is a function (i.e. always map to only single values), how to prove that $x(p,w)$ is ...
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Overlapping Generations Model Pension System Question

Part 1 Pension System OLG Model with pension system: Each individual lives up to two periods. The surviving probability at period 2 is p. At period 1, the young household consumes c1, saves s1, and ...
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Check if a utility function represents a monotone preference

Given a function $u(x_1, x_2) = x_1 +x_2 + \min(2x_1, x_2)$, how do we mathematically prove that it monotonic or not? Is there is a general algebraic technique to show monotonicity of suchlike ...
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Numerical Solution Using Excel about optimal consumption of households

I'm not sure how to solve this problem. I'm given the discount factor, interest rate, probability of high income shock, and various income shock sizes that I need to use to compute optimal consumption....
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2answers
113 views

Algebraic approach towards convexity

I have a function: $ u(x) = x_{1} + x_{2} + \min\{x_{1}, x_{2}\}$. How do we algebraically show if it's convex or not? Also, what would be the general way to show if any given function is convex.
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Why is the opportunity cost 0 in this case?

My book says that the opportunity cost of purchase of a specialized equipment that has no alternative use is zero and hence such an expenditure is a sunk cost. However, while calculating the user cost ...
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Under what conditions should I use a Social Accounting Matrix Model vs. Multimarket Model vs Computable General Equilibrium Models?

What are the differences between the SAM, multimarket and CGE models. When should I use one over the others?
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How can I model the impacts of improved agriculture technologies and food aid in a multimarket model?

Given a multimarket model for staple agricultural commodities wheat, rice, maize and sorghum, in a low-income economy, Im trying to figure out how I can use the multimarket framework to look at the ...
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Is oil supply really inelastic in the short term

Is oil supply really inelastic in the short run? Though it remains evident that in the short run, the known capacities of oil can't be increased and hence we can assume that there remains a upper cap ...
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CPI Bias with consumers using computers extensively

I was studying Microeconomics from Microeconomics by Pindyck and Rubinfeld where it was written that CPI calculated on Laspeyres index has overstated the cost of living for consumers who use computers ...
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1answer
29 views

Returns to Scale [closed]

Consider a firm with the production function $y=CL^{a}K^{b}$, where $C>1$, $a>0$, $b>0$. Write down the conditions under which this production function exhibits: i) increasing returns to ...
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Is this utility function continuous?

$u(x_1,x_2)=|x_1 −2|+x_2$ Is this function continuous? PS: The continuity theorem I use is this: Whenever for any $x^n$, $n \in N$ with $x^n \to x$ (i.e. $\lim_{n \to \infty} x^n = x$) and for any $...
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Notation: is it correct to write $x \succsim y \succsim z$ before using transitivity?

Let $\succsim$ complete and $x, y, z \in X$. Suppose $x \succsim y$ and $y \succsim z$. Is it OK to write $x \succsim y \succsim z$ just knowing this? Or, on the contrary, such expression ...
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Study whether $\succsim$ represented by $u(x)=\lfloor x \rfloor$ is continuous

Using the following definition of continuity: $\succsim$ is continuous if for any bundles $x,y,z$ such that x$\succ$y$\succ$z, there exists $\alpha \in (0,1)$ such that $\alpha x + (1-\alpha)z \sim y$....
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Has contest theory ever been used to design real-world contests?

Contest theory, very much like auction theory, studies how people act in a contest and the properties of such a competition. There is a large literature that investigates different aspects of the ...
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28 views

Modeling risk aversion. Expected utility function

I want to model an Expected Utility Function for risk aversion but my problem is uncertainty in itself. I want a function(a special case) $$f(x, y) =\left\{\begin{matrix} h(bx^{1-C}+ay^{1-C}),C\neq 1\...
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How to determine the first bid for a Double-Bounded Dichotomous-Choice Contingent Valuation model?

I'm very new to the survey format of double-bounded dichotomous-choice for contingent valuation, so I apologize for my naive question. Could you please let me know how a researcher decides the initial ...
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1answer
41 views

Most profitable conversion of stock into money

When Forbes-lists of top billionaires are published we are usually aghast of their riches and statements such as "the 8 richest people own as much as the poorer half" are disseminated. I was ...