Suppose Tim is deciding how much to invest in his health, and his Marginal Efficiency of Investment (MEI) curve for health inputs (H = hours spent exercising per week) is given by the following equation: H = 40 – 100(r+δ), where r is discount rate and δ is the rate of health capital depreciation. If Tim’s discount rate is 8% (or 0.08), and his rate of depreciation of health capital is 4% (or 0.04), how many hours per week will he spend exercising? Show your work. Now, suppose Tim gets a large raise at work, such that his hourly wage doubles. Would we expect his optimal level of health investment to change as a result? If so, how and why? Explain your answer using the theoretical framework.

Suppose Tim is deciding how much to invest in his health, and his Marginal Efficiency of Investment (MEI) curve for health inputs (H = hours spent exercising per week) is given by the following equation: H = 40 – 100(r+δ), where r is discount rate and δ is the rate of health capital depreciation. If Tim’s discount rate is 8% (or 0.08), and his rate of depreciation of health capital is 4% (or 0.04), how many hours per week will he spend exercising? Show your work. Now, suppose Tim gets a large raise at work, such that his hourly wage doubles. Would we expect his optimal level of health investment to change as a result? If so, how and why? Explain your answer using the theoretical framework.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter18: Asymmetric Information

Section: Chapter Questions

Problem 18.9P

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