ECON 2310 To get how much she consumes in a perfect complement

repeat problem 10.3 but assume that, in Angela’s view, one kilogram of food this year is the perfect compliment to one kilogram of food next year. In other words assume that her indifference curves are L shaped, and that the corner of the L in each curve lies on the 45 degree line. How would you interpret her preferences.10.3(Original Question)Angela cares only about food this year and food next year. Let’s use F0 to stand for food this year (in kilograms) and F1 to stand for food next year (also in kilograms). Assume that Angela’s marginal rate of substitution between food this year and food next year is F1/F0. Suppose she earns $100 this year and nothing next year. Food costs $1 per kg in both years and the interest rate is 10 percent. How much does she consume this year and how much does she save? Write a formula for her saving as a function of the interest rate, R. Does she save more, less, or the same amount when the interest rate rises?

 

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