Assume there is a constant per unit opportunity cost of Consumption call it Saving If an individual wants to maximize his net utility
Assume there is a constant per unit opportunity cost of Consumption (call it “Saving”). If an individual wants to maximize his net utility (minus opportunity cost), set up the math problem he would solve. Use this given utility function: U(C) = (1/a) * C^a. 4. Maximize your problem from (3) to solve for the individual’s level of optimal consumption. Does the optimal consumption depend on the opportunity cost? a. Show that the individual will consume more when the opportunity cost of consumption is lower
Apr 23 2020 View more View Less
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