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5.7, 5.8, 5.9, 6.9, 6.10, 6.11, 6.17

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5.7, 5.8, 5.9, 6.9, 6.10, 6.11, 6.17
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Answered Same Day Dec 31, 2021

Solution

David answered on Dec 31 2021
114 Votes
Ans. NPV of lifetime income (at period 1)=210+210/1.05=$410
@R=.20
NPV at period 1=210+210/1.2=385
FV at 2 = 210+210*1.2= 462.
We could peg the line at 410 and steepen it (verify that slope decreases as r increases), but that
would bias income upwards, having no other effect on qualitative judgements.
8. The Indifference curve, shall be negatively sloped . Luckily it has slope =-1 != slope of our budget
constraint. Find the highest IC that can be reached in Budgetr set. Since our Budget lines are flatter,
with higher values along c2, The point of optima would be the maximum amount of consumption in
c2=430.5, and zero in c1.
Note that the objective function is in form of c1+c2 and any other linear comination has value <
max value and is suboptimal.
9.
His objective function is min(c1,c2)
It can be depicted by the...
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