Consider an entrepreneur living in a two-period, one-good, riskless economy with prefer- ences represented by a concave utility function over consumption in the first
Consider an entrepreneur living in a two-period, one-good, riskless economy with prefer- ences represented by a concave utility function over consumption in the first and second period (e.g., ln xo + log x). The entreprener owns a firm with production represented by a function denoted by f(z) where z is the input and f'() > 0. The entrepreneur can borrow and lend in the financial market by trading contracts that have a return r and a price q. Assume that f'(0) > and let eo and e be the endowment in the first and second period, respectively. 0 In a graph (e.g., you don't need any computation) identify the entrepreneur's consumption choice (x0, x1), input decision z, how much she receives from the production process, how much she borrows (or lends) and how much she has to payback to the market (or receive from the market) in the following cases: (a) eo = 0 and e > 0. (b) eo=e = 0.
Step by Step Solution
3.44 Rating (157 Votes )
There are 3 Steps involved in it
Step: 1
dim M2 as it ex spanned by two vectorz dim 121 4 dim M 122 So Explanations ...See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started