Question: Consider the function C(u) ~ (k + cAu)/(l -e-au), the objective function ofthe present-value model of Section 3.7. Show that qu) is strictly convex. Hint:

Consider the function C(u) ~ (k + cAu)/(l -e-au), the objective function ofthe present-value model of Section 3.7. Show that qu) is strictly convex. Hint: Show that the functiong(x) = x(1 + e-j -2(1 -e-j is positive for x> O. Further hint: Clearly, g(O) = 0; show that g'(x) "" O.

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