Answer to Question #113539 in Economics for MANU

Question

Consider the following scenarios of consumer optimization:
a) Nina has the following utility function: U = In(Cl) + In(Cz) + In(Ca).
She starts with wealth $120,000, earns no. additienal income and faces a zero. interest
rate. Hew much does she consume in each of the three periods ?
b) David is just like Nina, he starts with initial wealth $120,000, earns no. additional income and faces a zero. interest rate except he always gets extra utility from present consumption. Frem the perspective of period one, his utility function is :
U = 2In(Cl) + In(C2)+ In(C3).
In period one, hew much does David decide to. consume in each of the three periods? Hew much wealth does he have left after period one ?
c) When David enters period two, his utility function is: U = In(Cl) + 2In(C2) + In(C3).
Hew much does she consume in periods two and three?

Answer 1

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