A consumer's utility function is: U(c1, c2) = C1C2 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 there is no inflation, so the prices of the composite good in each period are constant at 1 rupee. where C1 The amount of money (income or endowment) the consumer will have in each period is denoted by m, and m2. The consumer can borrow or save (lend) money without any interest charges: r = 0. Thus, the budget constraint is: c1 + c2 = m1 + m2 (a) Write the consumer's utility maximization problem. Define the Lagrangian function for this utility maximization problem. Write the first order necessary conditions. (b) Assume: m1 = 200, and m2 = 100. Find the optimal choice of composite good for each period (note that it is in rupees). Compute the saving/borrowing in period 1.

A consumer's utility function is: U(c1, c2) = C1C2 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 there is no inflation, so the prices of the composite good in each period are constant at 1 rupee. where C1 The amount of money (income or endowment) the consumer will have in each period is denoted by m, and m2. The consumer can borrow or save (lend) money without any interest charges: r = 0. Thus, the budget constraint is: c1 + c2 = m1 + m2 (a) Write the consumer's utility maximization problem. Define the Lagrangian function for this utility maximization problem. Write the first order necessary conditions. (b) Assume: m1 = 200, and m2 = 100. Find the optimal choice of composite good for each period (note that it is in rupees). Compute the saving/borrowing in period 1.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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