Consider Fred’s investment in units of health capital with the following function Indicate some of the components of the cost of capital
Consider Fred’s investment in units of health capital with the following function: (a) Indicate some of the components of the cost of capital, and why they are costs. (b) If the cost of capital is 10% each year, what is the equilibrium health investment in terms of units of capital? What is the equilibrium total investment expenditure? Explain both answers. (c) If the cost per unit of health capital doubles to 20%, what will happen to the equilibrium level of health investment and to equilibrium health investment expenditures? Why? 10. Consider the obesity model where equation (7.7) refers to a daily obesity function. Suppose that Ed can either exercise 0 or 1 session per day, with µ = 300. If Ed substitutes one junk food meal (d = 800) for a healthy meal (e = 600) five days per week, how often per week will he have to exercise to avoid increasing S? Why?