Assume you are the manager of a firm facing a two period planning problem under certainty The transformation curve is (K 1 5) 2 K 2 2 225 initial K 1 10 Use interest rates of your own choice a Illustrate how the introduction of a perfect capital market may improve the initial wealth of the firm wit...

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Assume you are the manager of a firm facing a two-period planning problem under certainty. The transformation

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Assume you are the manager of a firm facing a two-period planning problem under certainty. The transformation curve is (K ₁+5) ²+K ₂ ²=225. initial K ₁=10

Use interest rates of your own choice:

a.Illustrate how the introduction of a perfect capital market may improve the initial wealth of the firm with limited resources by enabling borrowing.

b. What is the interest rate threshold above which the firm will not borrow from the capital market?