Demand for consumption today and consumption next period

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Met's preferences over consumption is defined by the following utility function: u(c1,c2) = min[c1,2c2] . Note, c1 is Met's consumption today and c2 is Met's consumption next period.

a. Derive Met's demand for consumption today and consumption next period (let the price equal one in each period and the interest rate be 25 percent).

b. Would you describe Met's preferences by: "Live for today," or, "Save for Tomorrow"?

c. Solve for Met's optimal consumption in each period if he has 500 income that he receives each period (note: Met can borrow against his future income or save income to use in period 2).

Reference no: EM13896987

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