Question
Optimal purchases Optimal purchases of nondurable of nondurable consumption c1, consumption c2, durable durable Receives real consumption of Receives real income Yl DUR Start of
Optimal purchases Optimal purchases of nondurable of nondurable consumption c1, consumption c2, durable durable Receives real consumption of\
Receives real income Yl DUR Start of economic planning horizon Receives assets ao, inclusive of dividend and capital gains NOTE: Economic planning occurs for the ENTIRE remaining lifetime. Figure 1. Ordering of events. Optimal purchases of nondurable consumption Cl, durable DUR consumption c2 and assets al Period 1 Receives real income Y2 DUR Receives optimally- chosen assets 4, inclusive of dividend and capital gains Optimal purchases of nondurable consumption c2, durable DUR consumption c3 and assets DUR Period 2 a. b. c. d. Based on the utility function and budget constraints stated above, construct the sequential Lagrange function. Based on the Lagrange function in part a, compute the two first-order conditions with respect to Cl and c2. Based on the Lagrange function in part a, compute the first-order condition with DUR respect to Using the first-order conditions from part b, eliminate any and all Lagrange multipliers contained in the result in part c. Provide important algebraic steps.
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