3. Consider a parent who is altruistic towards her child, but also cares about her own consumption. The parent's utility over her own consumption and that of her child is up log(co) + a log(c₁) where c₁ is the child's consumption, and a > 0 is the degree of parental altruism. Suppose that the parent can invest in the child's human capital by spending money (e) on her education; education generates human capital h = f(e) and human capital is paid at rate w. The parent has a total income of y. (a) Write down an expression for the child's future consumption in terms of the parent's choice of e. (b) Now write down the Lagrangian for the parent's decision problem.

3. Consider a parent who is altruistic towards her child, but also cares about her own consumption. The parent's utility over her own consumption and that of her child is up log(co) + a log(c₁) where c₁ is the child's consumption, and a > 0 is the degree of parental altruism. Suppose that the parent can invest in the child's human capital by spending money (e) on her education; education generates human capital h = f(e) and human capital is paid at rate w. The parent has a total income of y. (a) Write down an expression for the child's future consumption in terms of the parent's choice of e. (b) Now write down the Lagrangian for the parent's decision problem.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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