In a DD model with 3 periods t=0,1,2. Each consumer is endowed with 1 potato at t=0, has probability 1/2 of becoming hungry at t=1 and probability 1/2 of becoming hungry at t=2. Consumer utility is given by u(c)=1-1/c. Storage technology generates a gross return of 1 from period 0 to 1, and return of 1 from period 1 to 2. Investment technology generates a return of 3 from period 0 to period 2. If an investment is liquidated early in period 1, its return is reduced to 0.5. Suppose all consumers in town pool their potatos together. Of the 100 potatos, they store 20 and invest 80. When t=1 comes, early types are fed with the stored potatoes. When t=2 comes, late types are fed with the invested potatos. The expected lifetime happiness of a consumer = (keep 3 digits after decimal points)

In a DD model with 3 periods t=0,1,2. Each consumer is endowed with 1 potato at t=0, has probability 1/2 of becoming hungry at t=1 and probability 1/2 of becoming hungry at t=2. Consumer utility is given by u(c)=1-1/c. Storage technology generates a gross return of 1 from period 0 to 1, and return of 1 from period 1 to 2. Investment technology generates a return of 3 from period 0 to period 2. If an investment is liquidated early in period 1, its return is reduced to 0.5. Suppose all consumers in town pool their potatos together. Of the 100 potatos, they store 20 and invest 80. When t=1 comes, early types are fed with the stored potatoes. When t=2 comes, late types are fed with the invested potatos. The expected lifetime happiness of a consumer = (keep 3 digits after decimal points)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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