Unformatted text preview: makes it the logical starting point. The agent’s current period utility function, u(c t ), is assumed to depend only consumption, c t . The technology that turns capital, k t , into production is described by the production function f (k t ). Here k t measures the existing capital stock chosen during t − 1 and productive at the beginning of period t. Because of depreciation during production, only (1 − δ) will be available during period t. Typically the utility function and the production function are assumed to be continuous, differentiable, strictly increasing and concave in its argument and to satisfy the Inada conditions. A function g (x) satisfies the Inada conditions if lim x→0 ∂g(x) ∂x = ∞ and lim x→∞ ∂g(x) ∂x = 0....
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- Spring '10
- Economics, representative, current period utility, logical starting point, Deriving first-order conditions, Dynamic Optimization Problems