If your utility function is the following form:U(c) = c1 + B c2, where c1 is the consumptionin period 1, c2 is the consumption in period 2,the time-preference parameter, B= 1 andperiod l's endowments el= 500 and period2's endowments e2 = 400, what is the optimalconsumption in each period if (a) the interestrate (r) is zero, and (b) the interest rate (r) ispositive?%3D

The above given problem is a case of intertemporal choice, where consumption is done in 2 period.…

If your utility function is the following form: U(c) = c1 + B c2, where c1 is the consumption in period 1, c2 is the consumption in period 2, the time-preference parameter, B= 1 and period 1's endowments el= 500 and period 2's endowments e2 = 400, what is the optima consumption in each period if (a) the interest rate (r) is zero, and (b) the interest rate (r) is positive?

If your utility function is the following form: U(c) = c1 + B c2, where c1 is the consumption in period 1, c2 is the consumption in period 2, the time-preference parameter, B= 1 and period 1's endowments el= 500 and period 2's endowments e2 = 400, what is the optima consumption in each period if (a) the interest rate (r) is zero, and (b) the interest rate (r) is positive?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 2MC

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