Teine kodutöö aines Mikroökonoomika II
euro annually, real interest rate is 10%. Individual preferences over consumption in two periods are
u(c1, c2) = min {c1, 2c2}
a. Solve the exercise by finding first and second period optimal consumption and show your results on
the graph.
max u(c1, c2) = min {c1, 2c2} s.t. c2 = m2 + (1+r)*(m1-c1) => c2 =
40000 + 1,1*(20000-c1)
c2 = 62000 – 1,1*c1
c1 = 2*c2
c2 = 62000 – 2,2*c2
c2 = 19375
c1 = 38750
c2
40K
u
19375
20K 3875 c1
0
Consumer is borrower. He borrows 18750 in the first period, then returns
18750*1,1 in the second, therefore second period consuming is decreased
by borrowed+interest amount.
annaabi.ee 
