By how much would her period 1 consumption increase

Reference no: EM132138958

Question: Mandy has an income of $800 in period 1 and will have an income of $500 in period 2. Her utility function is U(c₁, c₂) = c^0.80 c^0.20, where c₁ is her consumption in period 1 and c₂ is her consumption in period 2. The interest rate is .25. She unexpectedly won a prize that made her period 2 income $1,000 (period 1 income remained $800). By how much would her period 1 consumption increase or decrease? Show your work.

Reference no: EM132138958

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