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1)This problem uses calculus to compare two scenarios of consumer optimization

Economics

1)This problem uses calculus to compare two scenarios of consumer optimization.

a. Nina has the following utility function: U = ln(C1) + ln(C2) + 1

She starts with wealth of $ 120,000, earns no additional income, and faces a zero interest rate. How much does she consume in each of the three periods?

b. David is just like Nina, except he always gets extra utility from present consumption. From the perspective of period 1, his utility function is U = 2ln(C1) + ln(C2) +ln(C3)

In period 1, how much does David decide to consume in each of the three periods? How much wealth does he have left after period 1?

c. When David enters period 2, his utility function is U = ln(C1) + 2ln(C2) + ln(C3)

How much does he consume in periods 2 and 3? How does your answer here compare to David’s decision in part (b)?

d. If, in period 1, David were able to constrain the choices he can make in period 2, what would he do?

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