Sarah with preferences U = c1^1/3, c2^2/3 has a human capital production function R = 6E1/2. She earns income m1 = $12 and m2 = $12 and can borrow or lend at an interest rate of 50 percent. Provide calculations and a labelled diagram to evaluate Sarah’s optimal expenditures on food and education and how these choices should be financed. What proportion of her lifetime earnings does she spend on c1? Show the Hicksian IE and SE when 1 + r = 1.

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