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.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

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.

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Cost-minimizing Input Choice
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education