Question: consider dexters intertempral choice c1c2 where ct is his consumption...
Consider Dexter's intertempral choice (c1,c2), where ct is his
consumption measured in $ for t = 1,2. He has income of m1 = 1000
and m2 = 1500 over those periods. His utility function is given by
u(c1,c2) = ln(c1) + δ ln(c2), where δ = 0.9.
(a) If he can borrow or save at the interest rate of 10% (r = 0.1), then what is his optimal consumption bundle (c1*,c2*)?
(b) If he would like to consume the same amount in each period, what should be r?