Investment decision rule

This is similar to your being able to transfer

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Unformatted text preview: why the curve is concave to the origin. 4. By having these investment opportunities, you can transfer your consumption over time using the investment possibilities curve. This is similar to your being able to transfer consumption along the capital market line (borrowing or lending). 5. But there is one problem when there is more than one investor. Suppose a firm has to make an investment decision for its investors (shareholders or owners). Investors have different preference for consumption patterns. Some prefer to spend more today and less tomorrow. Others may be the other way around. (i.e. people have different indifference curve) Then the firm cannot find an optimal investment level that can meet the need of hundreds of thousands of it owners. 6. This problem can be resolved if there are perfect capital markets. We’ve learned that when there is no production (no investment) it doesn’t matter how much endowment you have as long as there are capital markets....
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