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Charlie cares only about the amount of chocolate he eats this year (C0) and next year (C1). His preferences correspond to the utility function \(U(C_{0},C_{1})=4(\sqrt{C_{0}}+\sqrt{C_{1}})\) Suppose he earns $1,000 this year and nothing next year. Chocolate costs $1 per ounce this year and $4 per ounce next year.
A) Assume the interest rate is 10% (or 0.10). What is Charlie's optimal bundle?
B) Provide a graph of this solution.
C) Now suppose the interest rate (expressed as a decimal) is R. Find a general formula showing how much Charlie will save as a function of the interest rate.
D) When the interest rate rises, does Charlie save more or less? How do you know
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Suppose that a perfectly competitive firm faces a market price $10 per unit, and at this price the upward-sloping portion of the firm's marginal cost curve crosses its marginal revenue curve at an output (Q) level of 1,200 units. If the firm produ..
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