Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Edward and Kim are planning to buy new pair of scissors for next Hedge Trimming Contest (this year's gathering was cancelled!). The event will take
Edward and Kim are planning to buy new pair of scissors for next Hedge Trimming Contest (this year's gathering was cancelled!). The event will take place 240 days from now. They each have different value of time. Let us denote their monthly interest rates as: ied and iKim, respectively. There are two options which enable them to purchase the scissors after 240 days from now: 1] Allocate $275 now and put it in a saving account which earns 0.01% per day. 2] Save whenever you can in a piggy bank and then allocate $281.68 after 240 days. 3] Buy the pair of scissors now and keep them in free-of-charge storage for 240 days. Due to rise in prices, the same pair of scissors which cost now $275 will cost $281.68 after 240 days. a) Let us assume for now that they find, from an economic perspective, that all plans; 13, equivalent and that it does not matter which option is chosen as they are rationally the same. What is the value of time of Edward? b] Is it possible for Edward and Kim to agree on three plans while having two different values of time. That is, is there a possibility that ied * iKim? c] Let us otherwise assume that they both looked at those plans and disagreed on the preference. It turn out that, based on rational economic analysis, Edward prefers Plan 1 while Kim prefers Plan 2. Who has a higher value of time? Why? You need to provide clear analysis to these problems not just final answers
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
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