A. Set up the decision problem and find the first order conditions.
B. Suppose U = log(c1) + blog(c2), for 0 < b < 1. Find the consumption function for c1 and the savings function.
2. Suppose the person lives for two periods, U = u(c1) + bu(c2), and can acquire an asset at price q, with c1 = w1 – qa and c2 = (d + q*)a + w2, where d = dividend and q* = selling price.
A. Find the first order conditions.
B. Find the asset demand function for a when utility takes the log form, as in 1B above.
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