Health Economics
14th Edition
ISBN: 9781137029966
Author: Jay Bhattacharya
Publisher: SPRINGER NATURE CUSTOMER SERVICE
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Chapter 5, Problem 3E
To determine
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Consider an infinitely lived agent who has one unit of a commodity and she consumes it over lifetime. The commodity is not perishable and she receives no dividend or interest on saving. Consumption of the commodity in period t is denoted Xt. Let the lifetime utility function be given by: u(x0, x1,...,) = Σ B^t (ln Xt).[Limit 1 to infinity]. Here, 0 < B < 1.
Compute the consumer’s optimal consumption level for each period.
An investor with an initial endowment of $ 16,000 is confronted with the following productivity curve: C1= 240 (16,000 - C0)^0.5
where C0 denotes consumption at present, and C1 consumption in the future. Assume the interest rate (for borrowing and lending) is 20%. The investor's utility function, from which it is possible to derive his indifference curves, is defined as: U(C0,C1) =C0C1
How much will the investor invest in production?
A)$16,000
B)$0
C)$10,000
D)$12,000
An investor with an initial endowment of $ 16,000 is confronted with the following productivity curve:
C₁= 240 (16,000 - Co)0.5
where Co denotes consumption at present, and C₁ consumption in the future. Assume the interest rate (for borrowing and lending) is 20%. The investor's utility function, from which it is possible to derive his indifference curves, is defined as:
U(CO, C1)=C0C1
How much does the investor borrow or lend in the capital market?
O The investor borrowed $13,000
O The investor lent $13,000
O The investor borrowed $7,000
O The investor lent $7,000
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