Business, 06.05.2020 07:08 tmantooth7018

Adwoa's friend tells her that 2001: A Space Odyssey is good. Adwoa is trying to decide between reading the book and watching the movie. Assume that the movie yields an immediate utility of 1 in the single period (single day) during which Adwoa watches it, and a utility of 0 thereafter. Assume that the book yields a utility of 0.1 for each of 100 periods during which she reads it, and a utility of 0 thereafter. Adwoa's utility function at time t is Ut=u(ct)+β∑i=t+1[infinity]δiu(ci), representing the fact that she discounts the utility of future consumption. First, suppose that β=0.5 and δ=0.92. What is Adwoa's present value of seeing the movie today? What is Adwoa's present value of reading the book, starting today?

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