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3) Using the optimal utility from Problem 1), create an indifference curve. Vary c from 0 to 20% in increments of 1%. For each c
3) Using the optimal utility from Problem 1), create an indifference curve. Vary c from 0 to 20% in increments of 1%. For each c, solve the utility equation for E(rc).
Then calculate a second indifference curve by adding .03 to the optimal utility and a third indifference curve by subtracting .03 from the optimal utility. At this point youll have 3 indifference curves.
Finally, use the CAL function to calculate E(rc) for each c
Show graphically that the CAL function is tangent to the indifference curve for the optimal utility.
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