Questions tagged [producer-theory]

Study of the behavior of firms in organizing their production and allocating productive resources.

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12
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6answers
2k views

Why are cost functions often assumed to be convex in microeconomics?

Why are cost functions typically assumed to be convex in producer theory of (introductory) microeconomics? For me this goes against the intuition of economies of scale. There are fixed costs (FC) ...
0
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0answers
41 views

Why does LRAC not connect the minima of SRAC curves? [duplicate]

Can anyone please provide an intuitive explanation and proper mathematical reason for non-intersection of SRAC and LRAC at the minimas of SRAC? I am seeing conflicting [1] [2] answers on the site ...
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1answer
101 views

Interior Solution for profit maximisation problem

A function $c: \mathbb{R}^K_+ \xrightarrow{} \mathbb{R}_+$ is is said to be a cost function if The value of function $c$ at $y = \textbf{0}$ is $0$: $c(\textbf{0}) = 0$ $c$ is continuous on the ...
4
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1answer
83 views

Walras Law in a production economy with fixed costs

Consider a price taking firm with fixed costs $fc \geq 0$: \begin{align*} \Pi &= \max_{n^D} \left\{ P_c F(n^D) - w\times n^D - fc \right\} \end{align*} A representative household owns this firm:...
5
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1answer
77 views

Properties on conditional demand correspondence from the textbook of Mas-Colell et al

I have a question on the properties of conditional demand correspondence Let $z(w,q)$ be the conditional factor demand correspondence, i.e. the solution of the cost minimization problem \begin{align} \...
2
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1answer
141 views

If production function is concave, then demonstrate that profit function will also be concave

Show that concavity of firm's production function implies concavity of its profit function. (Hint: For a concave function, first order conditions gives the vector that maximizes the function) ...
4
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1answer
251 views

Why was activity analysis abanadoned as a field of research?

Activity analysis was a thriving research area in the 1940's and 1950's. It was fruitful enough to earn the Nobel prize for Tjalling Koopmans. But it seems to have been abandoned altogether. Mas ...
4
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2answers
209 views

The existence of solution for profit maximization problem

I'm thinking about the conditions for existence of solution of this profit maximization problem(PMP), i.e., $\max_{z \in R_+^{K-1}} pf(z) -wz$, where $z \geq 0$: input vector, $p>0$: the price of ...
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0answers
34 views

Parameter value for a CES production function

Consider a firm with the following CES production function, which utilizes only two production factors (capital and labor) whose prices are, respectively, $r > 0$ and $w > 0$: $$ y = \gamma \...
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0answers
21 views

Lerner Index Interpretation?

How do you interpret the Lerner Index? I ask because at Uni. we have been told that, for monopoly, when the producer max. his profit, he sets the price such as the demand is elastic and the lerner ...
6
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1answer
605 views

Fixed cost of a firm

Suppose that a firm has a total cost function given by: $TC(q) = \frac{5}{q+1} + 5 + 5q + q^2$. What is the fixed cost? I seem to be able to come up with two "answers", which cannot be correct. My ...
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0answers
113 views

Kuhn-Tucker conditions in linear cost minimization

Suppose we have the production function $f: \mathbb{R}^{2} \to \mathbb{R}$ given by $$ f(x,y) = ax + by $$ and input prices $p_{1}$ and $p_{2}$, and we want to minimize the cost function $p_{1}x_{1} ...
2
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1answer
38 views

Do property values capture producer choice in agriculture?

I am interested in conducting research into how climate change impacts the social welfare of a country, particularly how it affects producers of agricultural product. My immediate thought was that as ...
0
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1answer
49 views

Perfectly elastic supply

How would you algebraically write a perfectly elastic supply? Will it be infinite at price = 4? (The choice of the number 4 is completely arbitrary)
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1answer
53 views

Value Function For Durable-Good Monopolist with General Distribution

It is known that with a unit mass of consumers, each of whom has a value distributed between 0 and 1, one can think of the monopolist solving \begin{equation} \max_{p} \ p[1-F(p)] \end{equation} when ...
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1answer
35 views

How can i determine the homogeneity degree of Stone Gaery function? [closed]

I dont know how to demonstrate homogeneity degree of this function $(X-\alpha)^{\beta}(Y)^{1-\beta}$ Any idea? Thanks.
5
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1answer
86 views

Intermediate Case of Bertrand and Cournot

I am wondering whether there is a model of oligopolies in which we have some intermediate case of Bertrand and Cournot competition. What I do not mean by "intermediate" is the mixed Bertrand - Cournot ...
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0answers
2k views

Finding long run equilibrium price, quantity and number of firms with a linear average cost function

I've been been brushing up on my micoreocnomics lately and I came across a question in Perloff that looked really simple, but for some reason I am struggling to answer: Assume we are in the long run ...
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1answer
138 views

Changing Constant Factor Demands

I’ve been given this true false question: Consider the minimization of wL + rK given F(K, L) $\geq$ Q with F(K, L) strictly increasing in K and L. The conditional factor demands K*(Q, w, r) and L*(Q, ...
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0answers
304 views

How is Aggregate Supply(Willing) equal to National Income(Actual)?

Acc. to definition of Aggregate Supply It is the total value of final goods and services that the producers are willing to supply in country . Definition of National Income It is the value of ...
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0answers
17 views

Is the definition of Investment variable in Economics?

I studied that Investment is the expenditure incurred on the procurement of such goods that would help us in production of goods and services. And mainly consists of Fixed and Inventory Investment ...
2
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1answer
164 views

Why does a homothetic function have constant ratio of marginal products along rays?

A homothetic ordering is defined as $x \succeq y \Rightarrow \lambda x \succeq \lambda y \qquad \forall \lambda >0$ where $x,y \in \mathbb{R}^n$ Then, any differentiable function representing ...
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1answer
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MICROECONOMICS: Optimal quantity produced in a Perfect Competition Market

Suppose the Total Cost function of a firm in Perfect Competition is given by: $$C(q) = 450 + 15q + 2q^2$$ The market price is $P = 15$ per unit Determine the optimal quantity produced by ...
4
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1answer
83 views

How to improve the underperforming construction productivity by correcting its market failures?

Globally, labor-productivity growth in construction has averaged only 1 percent a year over the past two decades, compared with growth of 2.8 percent for the total world economy and 3.6 percent in the ...
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1answer
87 views

Consider the following production function $Q=min \left(\frac{L}{2a}, \frac{K}{4b}\right)$. Let $w$ and $r$ be the wage and rental rate respectively [closed]

The cost function associated with this production function is $A) 2awQ\\ B) 4brQ\\ C) (wa + 2br)Q\\ D) None\; of\; the\; above$ What I have tried is: We have the cost function $wL+rK=C$. Since, here, ...
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0answers
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How to find the “cost function” given the production function *as well as* the cost per unit produced and the fixed costs?

I'm working on the following homework problem, transcribed verbatim: A firm has a production function defined as $y = 8L^{1/4}K^{3/4}$. The firm faces costs of \$20 wage, \$60 rental rate of ...
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3answers
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Is it possible to have constant marginal cost and decreasing average cost simultaneously? [closed]

I thought about possibility of occurring such event in the case of presence of fixed costs, but I would like to know others opinions.
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1answer
967 views

Are all points on the Long Run Average Cost (LRAC) curve productively efficient?

The definition of productive efficiency is that any given output is produced for the lowest possible cost. In the short run, only the minimum point on the SRAC curve is productively efficient - this ...
2
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1answer
217 views

Help with this microeconomics exercise

The question: A price-taking farmer produces a crop with labor L as the only input. His production function is:$$F(L) = 10L^{1/2} − 2L$$ He has 4 units of labor in his family and he cannot hire ...
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1answer
418 views

Some doubts about netput vectors

I have started studying producer theory on my own and there are some confusions. We know that a production plan is $y=(y_{1},y_{2},y_{3}....y_{L})$ where $ y_{i} $ is an output if its greater than $0$...
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0answers
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Is it possible to derive the marginal product of an input using a transformation function?

I'm using a transformation function $F(\cdot)$ to describe a production set $y = (x, z, L, K)$, where $x$ and $z$ are private goods denoted by positive numbers, $L$ is labour input, $K$ is capital ...
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2answers
64 views

Pricing Education

On what basis do colleges/private schools price a given course assuming class size and direct costs are the same? My current understanding is in my question on private school behaviour regarding the ...
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1answer
746 views

What is the meaning of the weights in a CES-production function?

In different paper I offen encounter two types of CES production functions $y=\left[\left(1-\omega \right) x_{1}^{\frac{\sigma -1}{\sigma}}+ \omega x_{2}^{\frac{\sigma -1}{\sigma}} \right]^{\frac{\...
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0answers
17 views

Delaying wages in response to slack?

I'm reading a book about the economic development of South Korea during the 'miracle' period. One of the points the author makes is the following: A major source of industrial disputes was ...
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0answers
849 views

Shape of Isoprofit Curves for Strategic Complements

Two goods are strategic complements if: $$\frac{\partial \pi_1}{\partial q_2}>0\;\text{and}\;\frac{\partial \pi_2}{\partial q_1}>0$$ The image below is a picture of best response functions and ...
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1answer
22 views

Retailer Price Setting for Existing Inventory in the Event of an Increase in Price Paid for the Good

If you are a retailer, and the price you pay for one of your retail goods goes up, how do you price the inventory you already had (which you paid a lower price for)? Here is an example of a TFD (True,...
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4answers
2k views

Are There Giffen Inputs?

I am studying for my candidacy exams and I came across this question on a previous exam. The question is in the TFD (True, False, Debatable) section of the exam. The claim is: There are no Giffen ...
2
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2answers
110 views

What would make a restaurant offer all-day breakfast?

Some restaurants particularly fast food ones offer breakfast food only during, well, breakfast hours. Other restaurants however offer breakfast food throughout their opening hours. Some restaurants ...
2
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1answer
43 views

Producer's cost for buying full solution vs. buying parts

This may be a very basic question. From a producer's standpoint, what are the theoretical or empirical results on the comparison of cost between buying assembled or full solutions from suppliers vs. ...
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2answers
2k views

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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2answers
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Why are some goods without close substitutes not sold in some countries?

Especially in consumer electronics, a large number of goods are offered only in some countries. Usually this holds only for products which have some close substitutes available (e.g., screens, where a ...
4
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1answer
297 views

Elasticity of substitution in Jehle and Reny Advanced Micro (3rd ed) exercise 3.8

Letting $f_i(\mathbf{x})=\partial f(\mathbf{x})/\partial x_i$, ($\mathbf{x}$ is a vector, a commodity bundle, and $x_i$ is a scalar, commodity $i$ in the bundle) show that, $\sigma_{ij}(\mathbf{x})\...
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2answers
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Economic Order Quantity w/ no set up costs

Is it possible to modify the EOQ model to work in a purchasing environment when ordering costs are effectively $0$? The classic EOQ model is: $$ Q=\sqrt{2aK/h} $$ with $a$ being demand, $K$ ordering ...
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0answers
316 views

Curvature of Cost and Production Function

I have been trying to understand the duality theory between cost and production function. Please let me know if my following statement is correct; If the cost function $C(w,q)$ is convex in $q$, the ...
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3answers
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CES Production Function with $\rho>1$

In using CES production functions of the form $f(x_1,x_2)=(x_1^\rho+x_2^\rho)^{1/\rho} $, we always assume that $\rho\leq1$. Why do we make that assumption? I understand that if $\rho>1$, the ...
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0answers
690 views

Monotonic Transformation

How does positive monotonic transformation of production function effect the resulting profit function? For example if we had production function $f(x) $ and that gave profit function $\pi(p,w)$. Now ...
3
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1answer
116 views

Homothetic Production Technologies

Can someone suggest a good resource on homothetic technologies and what properties they imply about cost function, profit function, input demands, output supply etc? Also is it possible to have ...
3
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1answer
754 views

Homothetic production function and Profit Function

I know that homothetic production function implies that cost function is multiplicatively separable in input prices and output, and it can be written as C(w,y)=h(y)C(w,1). Can some one help me derive ...
5
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1answer
71 views

Evidence that open source production processes increase efficiency and/or consumer surplus?

Is there peer reviewed evidence that open source production processes increase efficiency and/or consumer surplus? It seems that the first theorem of welfare economics requires complete markets which ...
7
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2answers
3k views

Which utility function yields a constant price elasticity of demand function?

How do I know which utility function I can use to find an isoelastic demand function, e.g., $x(p)=Ap^a$? And similarly, which cost function can I use to find an isoelastic supply function? Does it ...