Total Costfor producer= L(i+1)Total output = Q = 10L –L2Price of the output = $1L=Loan amountQ = Quantity of shoes produced. i= Interest ratea. Find the optimal interest rate for the moneylender who wants to maximize profit. Find the optimal loan amount that borrowers want to use to maximize their profit. Assume that if borrowers were not in this business of producing shoes, they would have worked in agriculture and earned an amount $16. [Hint: There are 2 equations and 2 unknowns] b. If moneylenders know that borrowers may default, set up the necessary equations to highlight this situation and graph it. Assume N time periods where N is not very large.
Total Costfor producer= L(i+1)Total output = Q = 10L –L2Price of the output = $1L=Loan amountQ = Quantity of shoes produced. i= Interest ratea. Find the optimal interest rate for the moneylender who wants to maximize profit. Find the optimal loan amount that borrowers want to use to maximize their profit. Assume that if borrowers were not in this business of producing shoes, they would have worked in agriculture and earned an amount $16. [Hint: There are 2 equations and 2 unknowns] b. If moneylenders know that borrowers may default, set up the necessary equations to highlight this situation and graph it. Assume N time periods where N is not very large.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Total Costfor producer= L(i+1)Total output = Q = 10L –L2Price of the output = $1L=Loan amountQ = Quantity of shoes produced. i= Interest ratea. Find the optimal interest rate for the moneylender who wants to maximize profit. Find the optimal loan amount that borrowers want to use to maximize their profit. Assume that if borrowers were not in this business of producing shoes, they would have worked in agriculture and earned an amount $16. [Hint: There are 2 equations and 2 unknowns] b. If moneylenders know that borrowers may default, set up the necessary equations to highlight this situation and graph it. Assume N time periods where N is not very large.
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