ECO359H5 : Practice problem--it's very helpful ~
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Eco 359 practice problems 1 solution guidelines (a) from your lecture notes: , hence m . Note that the project will only be carried out if r < 5 (else h). (b) the npv of investing i units into the project is given by. Verify that maximizing the above npv indeed yields your answer in (a). , hence again: m . (c: the constraint is # - $ im for # 3 ih. Note that the budget line does not extend to the right of the endowment (your cannot borrow with the storage technology): assuming 4 h, the budget constraint is. If h, chuck will only deal with the back to borrow, but will use the storage technology to save. *# 4 ih: chuck will invest m . units, and the budget constraint will then be given by.
