What is the optimal level of consumption in each period

Reference no: EM132196971

Question: Consider the following two period example with the demand curve of P = 8 âˆ' 0.3q andMC = 2 consistent across time periods.

a) What is the optimal level of consumption in each period if q1 + q2 = 40 and the discount rate is 5%?

b) What is the optimal level of consumption in each period if q1 + q2 = 30 and the discount rate is 5%?

c) What is the optimal level of consumption in each period if q1 + q2 = 30 and the discount rate was 10%?

d) What does the comparison between the optimal allocation in b) and the optimal alloca- tion in c) say about the importance of the choice of discount rate?

Reference no: EM132196971

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