Consider the dynamic choice of consumption with in-period utility given by u(c) = ln(c).

If there are only 2 periods, the result is similar- just replace with C = 0. We will use this model and these results for this whole homework.

1. ln(c) is an interesting utility function. Let's talk about it.

(a) What shape does it have?

(b) When 0 < c < 1, ln(c) is negative. Is that a problem? Is there anything special about negative utility?

(c) What is it about ln(c) that means you'll also consume something in all the periods (assuming A,B,C > 0)?

Answer rating: 100% (QA)

a The utility function lnc has an upwardsloping concave shape As c increases the marginal utility of ... View the full answer