An individual has an intertemporal utility functi monotonic, and strictly convex. She can borrow/lend at the interest rate, r, but does not have access to human capital. She is currently consuming a bundle such that MRS×₁x2 >1+r. How many of the following statements COULD BE true? [HINT: try drawing a picture] 0 0 0 The bundle is optimal (i.e. maximizes her utility). X If the individual is consuming both goods, she could do better by consuming less today and consuming more tomorrow. She is at a corner solution in which she only consumes tomorrow.

ENGR.ECONOMIC ANALYSIS
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2. An individual has an intertemporal utility function that is rational,
monotonic, and strictly convex. She can borrow/lend at the interest rate, r,
but does not have access to human capital. She is currently consuming a
bundle such that MRSx₁x2 >1+r. How many of the following statements
COULD BE true? [HINT: try drawing a picture]
0
X1x2
The bundle is optimal (i.e. maximizes her utility).
If the individual is consuming both goods, she could do better
by consuming less today and consuming more tomorrow.
She is at a corner solution in which she only consumes
tomorrow.
a. 1
b. 2
c.
3
V.
d. None of the above statements could be true.
Transcribed Image Text:2. An individual has an intertemporal utility function that is rational, monotonic, and strictly convex. She can borrow/lend at the interest rate, r, but does not have access to human capital. She is currently consuming a bundle such that MRSx₁x2 >1+r. How many of the following statements COULD BE true? [HINT: try drawing a picture] 0 X1x2 The bundle is optimal (i.e. maximizes her utility). If the individual is consuming both goods, she could do better by consuming less today and consuming more tomorrow. She is at a corner solution in which she only consumes tomorrow. a. 1 b. 2 c. 3 V. d. None of the above statements could be true.
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