John has the following utility function U(C₁, C2) = min{c₁ + ac2, C2}, whereC₁ and c₂ are his consumption in periods 1 and 2, respectively and a is somepositive constant. Suppose John has $100 income in period 1 and $105 incomein period 2. Prices in both periods are $1.Question 2 Part alSuppose a = 2. If John can freely borrow and lend at 5% interest rate whatwould be his optimal consumption in both periods?1Question 2 Part a2Suppose a = 2. Now, John can lend at 5% interest rate, but can't borrow atall. What would be his optimal consumption in both periods?Question 2 Part blSuppose a 0.5. If John can freely borrow and lend at 5% interest rate whatwould be his optimal consumption in both periods?Question 2 Part b2Suppose a 0.5. Now, John can lend at 5% interest rate, but can't borrow.What would be his optimal consumption in both periods?

Given Utility function U=min{C1+aC2,C2} Y1=100 Y2=105

John has the following utility function U(C₁, C₂) = min{c₁ + ac2,c2}, where C₁ and c₂ are his consumption in periods 1 and 2, respectively and a is some positive constant. Suppose John has $100 income in period 1 and $105 income in period 2. Prices in both periods are $1. Question 2 Part al Suppose a = 2. If John can freely borrow and lend at 5% interest rate what would be his optimal consumption in both periods? 1

John has the following utility function U(C₁, C₂) = min{c₁ + ac2,c2}, where C₁ and c₂ are his consumption in periods 1 and 2, respectively and a is some positive constant. Suppose John has $100 income in period 1 and $105 income in period 2. Prices in both periods are $1. Question 2 Part al Suppose a = 2. If John can freely borrow and lend at 5% interest rate what would be his optimal consumption in both periods? 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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