Illustrate what is mandy optimal consumption

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Reference no: EM1360540

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) = c10.80c20.20, where c1 is her consumption in period 1 and c2 is her consumption in period 2. The interest rate is 25% (0.25), and there is no inflation.

Illustrate what is Mandy's optimal consumption in period 1?

Illustrate what is Mandy's optimal consumption in period 2?

If she unexpectedly won a lottery which pays its prize in period 2 so that her income in period 2 would be $1,000 and her income in period 1 would remain $800,

What is Mandy's new optimal consumption in period 1?

What is Mandy's new optimal consumption in period 2?

Explain, in words, what has happened.

Reference no: EM1360540

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