please solve last part (graph) A consumer's utility function is:U(c1, C2) = C1C2where c, and c2 denote the planned consumption of composite good in period 1 and period 2,respectively. The consumption is on composite good and is expressed in rupees. Suppose thereis no inflation, so the prices of the composite good in each period are constant at 1 rupee.1The amount of money (income or endowment) the consumer will have in each period is denotedby m1 and m2. The consumer can borrow or save (lend) money at some interest rate r.(a) Write the consumer's utility maximization problem. Define the Lagrangian function forthis utility maximization problem. Write the first order necessary conditions.(b) Find the optimal choice of composite good for each period as function of endowments andinterest rate.0.1. Find the optimal choice of composite good(c) Assume: m1for each period (note that it is in rupees). Compute the saving in period 1.200, т2 3D100, and r =(d) Suppose interest rate rises to r = 0.2. Find the optimal choice of composite good for eachperiod. Compute the saving in period 1.(e) Draw a graph showing the effect of increase in the interest rate on saving (draw just twopoints: saving at r = 0.1 and r0.2).

Interest rate and savings are important variables in the economy. Interest rate denotes the return…

Answered: e) Draw a graph showing the effect of…

e) Draw a graph showing the effect of increase in the interest rate on saving (draw just two points: saving at r = 0.1 and r = = 0.2).

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.7P

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