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Consider an entrepreneur living in a two-period, one-good, riskless economy with prefer- ences represented by a concave utility function over consumption in the first
Consider an entrepreneur living in a two-period, one-good, riskless economy with prefer- ences represented by a concave utility function over consumption in the first and second period (e.g., ln xo + log x). The entreprener owns a firm with production represented by a function denoted by f(z) where z is the input and f'() > 0. The entrepreneur can borrow and lend in the financial market by trading contracts that have a return r and a price q. Assume that f'(0) > and let eo and e be the endowment in the first and second period, respectively. 0 In a graph (e.g., you don't need any computation) identify the entrepreneur's consumption choice (x0, x1), input decision z, how much she receives from the production process, how much she borrows (or lends) and how much she has to payback to the market (or receive from the market) in the following cases: (a) eo = 0 and e > 0. (b) eo=e = 0.
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