This paper concentrates on the primary theme of IF A CONSUMER HAS PREFERENCES U = X 1 X 2 OVER THE STEADY-STATE LEVELS OF CONSUMPTION IN THE TWO… in which you have to explain and evaluate its intricate aspects in detail. In addition to this, this paper has been reviewed and purchased by most of the students hence; it has been rated 4.8 points on the scale of 5 points. Besides, the price of this paper starts from £ 40. For more details and full access to the paper, please refer to the site.
If a consumer has preferences U = x1x2 over the steady-state levels of consumption in the two periods of life, show that the utility-maximizing choices satisfy x2/x1 = 1 + r. Use this result to calculate the capital–labor ratio in the steady-state equilibrium given the consumption possibility frontier from exercise 19.4. What is the effect on the capital– labor ratio of an increase in n and α? Explain.
Why might the purchase of capital (instead of the rental of capital) affect a firm’s profit maximization decision?