Given the utility function: U = ln c + l + ln c’ + l’ and the budget constraint: w(ℎ−l)+(w′(ℎ−l′))/(1+r)=c+(c′)/(1+r) (see pictures of function and constraint) where c = current consumption, c' = future consumption, l = current leisure, l' = future leisure, and r is the market interest rate.Suppose that the current wage, w = 20 and the future wage w' = 22. a) What is the optimal value of current consumption, c? b) What is the optimal valueof future consumption, c’*?
Given the utility function: U = ln c + l + ln c’ + l’ and the budget constraint: w(ℎ−l)+(w′(ℎ−l′))/(1+r)=c+(c′)/(1+r) (see pictures of function and constraint) where c = current consumption, c' = future consumption, l = current leisure, l' = future leisure, and r is the market interest rate.Suppose that the current wage, w = 20 and the future wage w' = 22. a) What is the optimal value of current consumption, c? b) What is the optimal valueof future consumption, c’*?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Given the utility function: U = ln c + l + ln c’ + l’
and the budget constraint: w(ℎ−l)+(w′(ℎ−l′))/(1+r)=c+(c′)/(1+r)
(see pictures of function and constraint)
where c = current consumption, c' = future consumption, l = current leisure, l' = future leisure, and r is the market interest rate.Suppose that the current wage, w = 20 and the future wage w' = 22.
a) What is the optimal value of current consumption, c?
b) What is the optimal valueof future consumption, c’*?
Transcribed Image Text:Given the utility function:
U = In c +I+ In c' + l'
and the budget constraint:
w' (h – l')
w (h – 1) +
= c +
(1+r)
(1+r)
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