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Author Question: Jose gets utility from the goods he consumes and also the income he earns. His utility function is ... (Read 94 times)

kellyjaisingh

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on: Jul 1, 2018
Jose gets utility from the goods he consumes and also the income he earns. His utility function is given by U(q1,q2 ) = q1q2Y Derive Jose's demand equations.
 
  Does the fact that he derives utility directly from income affect his consumption in this case?

Question 2

An investment is profitable as long as its internal rate of return is equal to the rate of interest.
 
  Indicate whether the statement is true or false


milbourne11

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Reply #1 on: Jul 1, 2018
Answer to Question 1

The demand equations are
qi = Y/2pi
because income is a scalar of his utility and not chosen by Jose; it has no influence on his optimal bundle.

Answer to Question 2

False. Such an investment has a profit of zero. The investment is profitable if the internal rate of return exceeds the interest rate.


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