Should I buy a plastic pumpkin with an electric bulb for $80 as a replacement for my annual purchase of 1 fresh pumpkin? Assume that I consider both types of pumpkin to be equal satisfactory in creating holiday spirit. The fresh pumpkin will cost $3 this year, and a box of votive candles sufficient to last the season costs $5. It takes me 1 hour to carve a pumpkin. I normally value my own labor for home projects at $20 per hour (since work in the home is tax free), but since pumpkin carving is semi-enjoyable, I assess that my time is worth $10 per hour in this activity. I anticipate that all costs, including labor costs, will increase 5% per year. I expect the plastic pumpkin to last 5 years, with no salvage value. I have a personal discount rate of 10% per annum.

3. saving two consumers, larry and jeff, have utility functions defined over the two periods of their lives: middle age (period zero) and retirement (period 1). they have the same income in period 0 of m dollars and they will not earn income in period 1. the interest rate they face is r. larry’s and jeff’s utility functions are as follow. = 0.5 + 0.5 and = 0.5 + 0.5 for each person is between zero and one and represents each consumer’s temporal discount econ 340: intermediate microeconomics. ben van kammen: purdue university. rate. a. write the budget constraint that applies to both jeff and larry in terms of consumption in each period and ), interest rate, and m. b. what is larry’s and what is jeff’s marginal rate of intertemporal substitution? c. what is the slope of the budget constraint? d. write each consumer’s condition for lifetime utility maximization. e. re-arrange the conditions from part (d) to solve for the ratio, . f. if > which consumer will save more of his middle age income? g. if > 1 1+ , in which period will larry consume more: = 0 or = 1?