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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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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106 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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288 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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3answers
208 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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181 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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1answer
3k 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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2answers
220 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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1answer
492 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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996 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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1answer
392 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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264 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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140 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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1answer
103 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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292 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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1answer
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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582 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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1answer
148 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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332 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
151 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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246 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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1answer
307 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
98 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
141 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
481 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
207 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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1answer
185 views

Identify whether a good is giffen good or not and under what condition

Given the following partial information about a consumer's purchases.He consumes only two goods. In year 1, $p_1^1=p_2^1=100,x_1^1=x_2^1=100$ In year 2, $p_1^2=100,p_2^2=80,x_1^2=120$ Over what ...
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1answer
556 views

How to find a firm's cost function based on its production function [closed]

The question A firm’s production function is given by $$q=F(L,K)=L^{1\over{4}}K^{1\over{4}}$$ find the firm's cost function $C(w,r,q)$, What I know so far I'm aware that the Technical rate of ...
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2answers
57 views

What is the formula for how many more I need to sell in order to justify raising cost?

I need to know the name and formula for this problem. I have widgets which have a certain lube content to them. We currently are selling the widgets for 3.00 each. The lube costs .50 cents for each ...
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1answer
2k views

How the presence of increasing returns to scale lead to market failure [closed]

How the presence of a sector with increasing returns to scale in a "perfect" economy may lead to market failure ? Can sb explain for me with the support of charts ?
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1answer
1k views

If government impose price control, what happens?

I have this MCQ homework that I would like your opinion about Suppose government chooses to impose a price control on a good. Which of the following is NOT a potential consequence of the restrictions ...
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1answer
77 views

price elasticity of output, makes sense?

I was wondering, in a log-log model of output, labour and commodity price where output is the depedent variable, does it make sense if the coefficient on the price variable is interpreted as the "...
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1answer
1k views

Robinson Crusoe Production Economy [closed]

Robinson Crusoe’s preferences over coconut consumption, C, and leisure, R, are represented by the utility function U(C, R) = CR. There are 48 hours available for Robinson to allocate between labor and ...
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1answer
301 views

Can budget lines be discontinuous?

It's been awhile since I've taken introductory microeconomics. I read budget lines can be discontinuous awhile ago but am suspicious as to such a concept being discussed in intro micro classes ...
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1answer
589 views

Representing these lexicographic preferences by non-continuous utility function?

I have the following preferences and I am wondering whether I could represent them by a utility function: $R_1 \succ R_2$ <-> $R_1\leq Q$ and $R_2 > Q$, $R_1 \succ R_2$ <-> $R_1 \leq Q$ and ...
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1answer
945 views

Given the supply and demand function what is the difference? [closed]

Given some unspecified demand and supply functions. I need to calculate quantity and price after taxation, but what is the difference between having a tax of 20% of total revenue and 20% of profits ($...
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1answer
61 views

Microeconomics: Question on Market for Factors

I am stuck and confused by a section of what I read in my textbook, could you please help me understand the paragraph? If you only vary one means of production and the market for it is competitive ...
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1answer
474 views

Mathematical Proof as to why does the total revenue increase when the prices are increased for an inelastic product? [duplicate]

I was recently reading up on the Price Elasticity of Demand and the section of Inelastic demand mentions that if a firm has inelastic demand for its product and wishes to increase its total revenue ...
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1answer
395 views

Government's intervention question [closed]

Given that demand for a good X is equal to $q_D=393-2p$ and market supply is $q_S=p/4-12$. Find equilibrium price and quantity, consumer and producer surplus and draw a diagram illustrating the ...
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1answer
1k views

How to interpret Marginal Cost values? [closed]

The Marginal Cost (MC) of an additional unit of output is the cost of the additional inputs needed to produce that output. Here is one of the formulas for calculating marginal cost: $\ MC=\Delta CF\...
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1answer
61 views

Present Value at time 0 [closed]

Land is an indestructible capital asset that offers a perpetual revenue flow. You own a piece of land that returns $20,000 per year forever. The relevant real interest rate to consider is 4%. What is ...

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