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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131 views

Second order partial derivative and cross second-order partial derivative

I'm following a paper (Full text available here!) where at some point (pag.17 and 20) the author get the following derivative: $$\frac{\partial V}{\partial L}=Y-X\frac{dY}{dX}=\alpha X^{-\frac{c}{b}}...
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43 views

Nash equilibrium two players in a joint effortful project

I have a problem where there are two agents in a joint project, Each agent $i$ puts in effort $x_i$ $(0 \leq x_i \leq 1)$ which cost each $c(x_i)= x_i^2$. The outcome of the project is $$ f(x_1, x_2)...
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252 views

Calculating the elasticity of substitution between factors of production

Following the work of Lu (1967) (Full text available here!) I got stuck trying to derive the elasticity of substitution between factors. He use the formula developed by Allen, that when the production ...
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166 views

Can the endowment point be the competitive equilibrium?

Quoting from MWG p.519, Chapter 10: Pure Exchange, The Edgeworth Box ..., any intersection of the consumers' offer curves at an allocation different from the endowment point $\omega$ corresponds to ...
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89 views

What is the monotone hazard rate assumption used for?

I was reading this article on advance purchase discounts and pricing in which the author uses the monotone hazard rate assumption. Why does the author use it? The article is Advance-purchase ...
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598 views

Is there any formal definition of a relationship between resource availability and demand?

I do not have any background on economics. So my question might sound too simple and I hope it to be clear enough. I am curious about the following: Is there any formal definition of a relationship ...
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45 views

Should publishers of scientific papers such as Elsevier be regulated by the government?

To get a pdf copy of a paper published in Elsevier is quite difficult. You need to pay a high price. Publishers like Elsevier used to have good reasons to charge people a lot: before the invention of ...
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33 views

Price Derivation in a Production Function

Here is a composite goods production function: And here is the price ratio of Ys and Yg, derived from their marginal products: Then the author normalized the price of final goods Y to 1 and somehow ...
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26 views

Devising a model for inflation for a closed points system

I am working on a project that involves points. The idea is that users will earn points and redeem them for certain rewards. The means via which the users earn are fairly limited (They can attend a ...
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141 views

Preferences over lotteries

Can anybody give me a hint how to solve the following problem? *One way to construct preferences over lotteries with monetary prizes is by evaluating each lottery L on the basis of two numbers, Ex(L),...
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64 views

intuitive interpretation of the marginal return/productivity of capital being less than one

Let's assume you have a production function, f, and you want to know how the output changes with respect to capital, everything else constant (ceteris paribus), so you want to know the marginal ...
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1k views

Unusual perfect complements utility function min{ax+y, x+2y} [closed]

What's the graph for this utility function? How can it be represented graphically? Is this function perfect complements? I do not fully understand that in the question attached in the picture, the ...
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25 views

Does a fall in the wage rate always reduce hours worked?

In the Neoclassical Labor-Leisure model, does a fall in the wage rate always reduce hours worked? Or does it depend on whether the substitution or income effect dominates?
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71 views

The verification of my solution

Farmer Smith's cattle wander into Farmer Jones' land once a month and cause $\$3,000$ of damage. If Smith reduced the size of his herd by half it would reduce the damage by half but it would also ...
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153 views

Income effect for inferior goods question

When you are only told in the question that the price level of the inferior good decreases, how can you draw the indifference curve accurately? The size of Substitution effect depends on the curviness ...
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95 views

What economics theory explains changes in purchasing different types of goods?

I am thinking about the first of the month. I spend more of my money on superior goods and, because of that decision, less on normal and inferior goods. Are income and substitution effects enough to ...
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103 views

maximize profit of competitive firm in short-run

Consider a competitive firm with the short-run cost function $C(q) = 20 + 6q +5q^2$. The firm faces a market price of $p$ for its output. (1) Find the firm's Profit Maximization problem. (2) Find F....
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282 views

What is the opportunity cost if I choose the option of highest value

I had a confusion about opportunity cost. Suppose I have three alternatives which can be completed in same time, and can provide me the value of \$30, \$10 or \$40. If I choose the one with \$10 then,...
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198 views

Macroeconomics, the circular flow of income and profits

I'm really confused about the concept of the circular flow of income. Specifically, I'm confused about the following situation: Imagine a simple economy where households don't save their income, so ...
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180 views

The social welfare of a unique general competitive equilibrium in an exchange economy

The first theorem of welfare economics states that "Every Walrasian Equilibrium (WE) is Pareto Efficient (PE)" - Microeconomic Theory Nicholson, Synder 11th ed. p477. But PE is quite a weak condition. ...
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2k views

Monopoly - Where is the Markup formula derived from?

Problem: My lecturer wrote the marginal revenue formula before writing the markup formula, indicating some sort of similarity between the two. How it was written on the board: Market Power ...
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1answer
71 views

Increasing returns to scale

Let $f=f(K,L)$ - production function. Let $f(1,2) \le4 $ and a production function is defined to have increasing returns to scale. What maximum product can the firm produce using K=3 and L=6? So we ...
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218 views

Unconstrained Optimization:Why is there no “profit style” function in consumer theory?

When being exposed to your equations for profit maximization you have an equation of: $$\pi=pf(x)-c(x)$$ with this you can solve for the optimal input(s) $x$ from the first order conditions and some ...
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488 views

Why is $\Delta p \Delta q$ in this diagram infinitely small?

I am curious why the area $\Delta p \Delta q$ is so small that it can safely be neglected.
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114 views

A question regarding definition of Pareto efficiency

It says on Wikipedia: "All the points on this locus are Pareto efficient allocations, meaning that from any one of these points there is no reallocation that could make one of the people more ...
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984 views

Why is there negative sign for income effect in slutsky equation? [closed]

Slutsky identity is given by: ∆x/∆p = (∆x/∆p)|substitution effect + (∆x/∆p)|income effect Now we know ∆m= x*∆p => ∆p=∆m/x Therefore, ∆x/∆p = (∆x/∆p)|substitution effect + (x*(∆x/∆m))|income effect But ...
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81 views

Why are the concepts of short-run and long-run equilibrium exclusive to aggregate supply and demand and macroeconomics?

Shouldn’t there also be a concept of short vs. long-run equilibrium in microeconomics? After all, short-run equilibrium describes the state of the economy when wages and prices are still adjusting and ...
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88 views

Permanent Income Hypothesis - Changes in r

I want to analyze the changes in the interest rate $r$ when dealing with the permanent income hypothesis. First of all, $r$ is the interest rate $0<\beta<1$ is the discount factor, $Y_t$ is ...
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380 views

Utility function must be continuous for $V(p, e(p,u) )$ to hold?

Most utility functions we work with are already continuous, so I thought it was understood that it must continuous. But how would I show that if the utility function is discontinuous the identity V(p, ...
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258 views

Why unemployment quantity can be larger than the market employment based on this price ceiling supply/demand chart?

Why unemployment quantity can be larger than the market employment based on this price ceiling supply/demand chart? Also, Isn't that (quantity demanded at minimum wage + unemployment = market ...
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138 views

How are elasticity of demand, marginal revenue, and total revenue connected?

I am completely new to economics, and am looking at some old exam papers. The question is as following: "In a normal marked, where there is a negative correlation between quantity and price, which of ...
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102 views

How to find the points on a budget line? [closed]

Hulk goes to the gym 20 times a month. His income is 1,000 per month and his visits to the gym cost $4 per visit. Draw Hulk's budget line for visits to the gym and all other goods, show the ...
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291 views

General equilibrium - exchange economy with time and perishable goods

I am attempting to solve a general equilibrium problem from the textbook Jehle and Reny. However, I am slightly confused if my approach is correct. The question is as follows. Consider an exchange ...
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201 views

Understanding the elasticity of demand for a monopoly

Question: Your are working for a firm that is a monopoly. It is producing using technology that exhibits obvious decreasing returns to scale. After working with them for a while, a co-worker makes a ...
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1answer
65 views

What is the effect on society of me choosing to make my own shoes, food, or clothing?

This question comes from someone who suggested brushing my teeth benefits the economy because it reduces demand for dentists, lowering the price. However, when I think more generally of making my own ...
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572 views

Homothetic function versus straight Engle curve

Homothetic functions can be defined as follow (Green, 1964, p.49): If two figures A and B are "homothetic", or "similarly placed" with reference to a point P [for example, the origin], then for any ...
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146 views

What are some applications of Akerlof's 'lemons' in goods and services markets?

How can the idea of Akerlof's 'lemons' be applied to goods and services markets (that doesn't include second-hand cars)?
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1answer
329 views

Troubleshooting Utility Maximization with the Lagrange Method

I'm trying to solve a utility maximization problem through the Lagrange method. The utility function is something like $u(x,y)=x+B(y-a)$. However, I'm running into problems as x and y do not come up ...
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1answer
294 views

Wooldridge's Microeconomics book vs Cameron and Trivedi's textbook

I'm debating between 2 Microeconometric classes at my college, (I realize I'm fortunate to have a choice). One class uses Wooldridge's "Econometric Analysis of Cross Section and Panel Data" the other ...
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148 views

Example in which revealed preference doesn't imply preference

I'm studying Varian's Intermediate Microeconomics, in which the principle of revealed principle is stated as follows (for now we're assuming strictly convex indifference curves): Let $(x_1, x_2)$ be ...
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1answer
1k views

Negative Marginal Returns

In my economics class, we learned that in the short run, there are three stages of marginal returns: increasing, decreasing, and negative. As a firm adds the first few units of labor, specialization ...
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245 views

What does the area defined by two different values for quantity under a supply curve represent?

Assume that a and b (b is greater than a) indicate the quantity of supply on a linearly increasing supply curve. How can be the area formed by those two points under the supply curve interpreted? The ...
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1answer
26 views

Question regarding demand schedule and equilibrium consumption [closed]

Please refer to the two images posted at this link: http://imgur.com/a/si3ko Referring to Page 2, I'm not quite sure what the author is trying to say regarding the two bracketed portions. Considering ...
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303 views

Inferior goods, monotonic utility and strict concavity [duplicate]

Is it possible to have an inferior good under the assumption of a utility function which is strictly monotonically increasing and strictly quasiconvex? I do not think so, but I could not find a ...
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2answers
38 views

Inelastic offer, tax paid by seller, who supports the charges

I have a small problem, I have a situation where we have a perfectly inelastic offer and a normal demand, then there is a tax that is paid by the supplier who supports the totality of the charges ? Is ...
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1answer
97 views

own and cross elasticity for many products

This publication uses this formula to fit a model to predict the demand of a product A: ...
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1answer
139 views

The equation for the firm's demand for labour

I have been stuck on this for a few hours (actually a few days). I can't find much useful information on the web that has made it any clearer. Suppose that a firm’s production function of output Q is ...
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1answer
475 views

Showing the Utility Possibilities Frontier is downward sloping

The slope of the UPF must be equal to the slope of the MRT and the MRS. Is it therefore enough to show that the slope of the MRS is negative?
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42 views

Uses of loans during recession

I've noticed that certificates of deposit have dropped their interest rates in my country. This seems to be due to lack of trust in economic opportunities and has caused an increase of liquidity in ...
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1answer
205 views

Solving a Cournot oligopoly game with N firms [closed]

This is the full question: Find all pure strategy Nash equilibria of the Cournot oligopoly game with $N$ firms facing linear demand $P = a − Q$ when the total cost for each firm is $c_i(q_i) = q_i^2$. ...

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