Question
Sam-I-Am is deciding how to allocate his budget between college tuition and green eggs & ham. He is planning to take out a loan to
Sam-I-Am is deciding how to allocate his budget between college tuition and green eggs & ham. He is planning to take out a loan to pay his tuition. He will repay the loan with 50 percent interest from his post-college salary of 120, 000. Sam-I-Am must also pay one-half of his taxable income to the government and all of his income is subject to tax. Let x1 denote spending on green eggs & ham and x2 denote spending on tuition (not including interest). Sam-I-Am has Cobb-Douglas preferences with = 14 and = 1.
(a) Find the first-order necessary condition(s) for utility maximization. (b) How much should Sam-I-Am spend on tuition and green eggs & ham?
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