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Suppose the lifetime utility of a consumer is represented by the utility function U(c, c') = c - 0.01c^2 + 0.9(c' - 0.01c'^2) Maximize (1)
Suppose the lifetime utility of a consumer is represented by the utility function
U(c, c') = c - 0.01c^2 + 0.9(c' - 0.01c'^2)
Maximize (1) with respect to c and c' subject to the lifetime budget constraint
c' = (1+r)we - (1+r)c
and prove that the consumer's utility maximizing bundle must satisfy
0.9(1+r) = (1 - 0.02c)/(1 - 0.02c')
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