4. Suppose you had to eat a cake over 3 days. The share of cake consumed in period t is Ct, so that Σ1Ct ≤ 1. Instantaneous utility is derived as u(ct) = log(Ct). a) = Find the optimal consumption path for an exponential discounter with a daily discount rate of p 0.1. b) Find the consumption path for a naïve hyperbolic discounter with a discount factor of 1 in the current day and B (1) for utility delayed by 7 days, where ß = 0.7 and p = 0.1. c) Discuss what a sophisticated hyperbolic discounter should do on the first day.

4. Suppose you had to eat a cake over 3 days. The share of cake consumed in period t is Ct, so that Σ1Ct ≤ 1. Instantaneous utility is derived as u(ct) = log(Ct). a) = Find the optimal consumption path for an exponential discounter with a daily discount rate of p 0.1. b) Find the consumption path for a naïve hyperbolic discounter with a discount factor of 1 in the current day and B (1) for utility delayed by 7 days, where ß = 0.7 and p = 0.1. c) Discuss what a sophisticated hyperbolic discounter should do on the first day.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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