Answer to Question #216655 in Finance for Uzaik

Question #216655

Consider Hitoshi who lives for two periods. In period 1, he is young and in period 2 he is old. He enjoys consuming, ct, and experiences distutility from labour, nt, according to the following preference function: U(c_{1}, c_{2}, n_{1}, n_{2}) = 2c_{1} ^ 0.5 + 2beta * c_{2} ^ 0.5 - 0.5n_{1} ^ 2 - 0.5beta * n_{2} ^ 2 He earns income from supplying labour in period 1 of winy and in period 2 of w2n2. Any saving he earns in period I can earn a return of (1+r₁) that is paid out to him at the beginning of period 2. He also knows when he is young that he will receive an inheritence of a2 in period 2.

a) Write out Hitoshi's one and two-period budget constraints. Combine these to form an intertemporal budget constraint.

b) What is Hitoshi's choice problem? What variables does he have control over? What variables does he take as given?

c) Solve Hitoshi's two-period optimization problem by taking FOCs and deriving his intertemporal and intra-temporal tradeoff conditions.

Explain and show your math.

Expert's answer
Dear Uzaik, your question requires a lot of work, which neither of our experts is ready to perform for free. We advise you to convert it to a fully qualified order and we will try to help you. Please click the link below to proceed: Submit order

Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!


No comments. Be the first!

Leave a comment

Ask Your question

New on Blog