VARulle
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What does "r" represent in the total cost function?
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The $r$ in the total cost function is the interest rate, which at the same time constitutes the price of capital. You can think of it as an explicit cost, e.g. if you rent the capital or pay interest ...

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Everyone has the same marginal rate of substitution
1 votes

That statement is a summary of what is explained in detail on pages 85-86. Basically, if you have two goods and exogenously given prices and everybody optimizes, then (assuming interior solutions for ...

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Why can utility functions be continuous, and what does this imply for marginal utility?
1 votes

Utility functions can be continuous because quantitites can be continuous. (Think liters instead of bottles of wine or kilos instead of loafs of bread.) But even if quantities are discrete; whenever a ...

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Supply and Demand Curves under Perfect Competition
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0 votes

First, there is an error in your last equation: You forgot to divide $2q$ by $b$. But that doesn't help here, because the problem is that you are mixing things up. Your equation for $p$ describes the ...

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Finding the set of pareto efficient allocations with externalities
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In the Edgeworth box we have $x_{21}=1-x_{11}$, so, ignoring the constant, the first agent's utility function can simply be rewritten as $u_1=x_{11}+x_{12}$. Thus, for agent 1 the two goods are ...

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Multi dimensional Auction in economics
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From the buyer's point of view, the "best" supplier is the one who offers them the highest utility. Using the utility function for scoring suppliers seems quite natural then. (In this paper ...

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Arrow’s Impossibility & Validity of Social Welfare and Pareto Improvement Analysis
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The utilitarian SWF assumes that individuals' utility functions are quasilinear in money. Thus, they violate Arrow's Unrestricted Domain axiom, but satisfy the other axioms. If you accept ...

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How to find the Utility Possibility Frontier when there are Perfect Substitutes?
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In addition to the solution worked out in the comments, there's also a faster way to find the welfare maximizing distribution: Note that social welfare can also be written in terms of $x_{1A}$ and $...

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Why does a tariff have no effect to an exporter?
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A tariff is a tax on imported goods. If you export instead of import goods, a tax on imported goods is irrelevant for you. You might have misunderstood who considers imposing the tariff. If the ...

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How to find opportunity cost if each choice has more than one important effect?
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Note that as a rational agent you will have preferences on the set of (wage, free time) bundles. Your own answer suggests that these two "goods" are perfect substitutes, but this is not the general ...

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Finding Mixed Nash Equilibria in a $3\times 3$ Game
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The following method works if you already know or at least you may safely assume that the game is nondegenerate, i.e. all Nash equilibria (NE) are isolated: (a) Check for pure NE. (None in your case.)...

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Budget Constraint
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Checking the second order derivative of the utility function evaluated at the solution tells you something about the local shape of the graph of the utility function at your solution. However, this is ...

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locally nonsatiated preferences
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Depends on what exactly you mean with "this symbol": $\varepsilon$ denotes a real number. $>$ stands for the strictly-greater-than relation in the real numbers. $0$ is the number zero, i.e., the ...

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Does Efficient Market Hypothesis make anticipated monetary policies useless?
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It is true if you assume that anticipated means anticipated by almost all (in the mathematical sense) market participants. This is a simplifying assumption made in some theoretical models but of ...

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Why is the price of capital ‘r’ ? (From Cost function)
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Just like the wage $w$ is the (rental) price of buying one unit (say, one person-hour) of labor you can think of $r$ as the (rental) price of renting one unit (say, one machine-hour of a standardized ...

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Derivation of a Demand Equation
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Hint: Rearrange your equation 1. to express optimal consumption $x$ as a function of $P_x$ and $P_y$! Does the rhs now contain $I$?

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Utility Functions: Implying endless consumption?
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For a single good this is tantamount to asking for a solution of the problem of finding the maximum over $\mathbb{R}$. It sounds like "infinity" being a good guess, but this is not a real number, so ...

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Extensive Form Representation
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-1 votes

Put player 2's decision nodes after a Left move by player 1 into an information set to concur with the description in bold.

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