Re: JNU ECOM 2011 QUES 23-32

Posted by kangkan on Mar 21, 2014; 3:35pm
URL: http://discussion-forum.276.s1.nabble.com/JNU-ECOM-2011-QUES-23-32-tp7585342p7585350.html

it is reasonable to assume that he borrows in his youth and pays off from middle age..also that youth consumption is <= to middle age consumption...now lets assume that he consumes c per year in mid and retirement age. let him consume 30000+k in his youth.

Therefore total debt at the end of youth is 20k

Since he must pay off before he dies 105,000*20=20k+40c
or k+2c=105,000

Hence our problem is Min C-(k+30000) subject to k+2c=105000 .it is a linear prgramming problem..you can solve it by a trick too..since it is reasonable to expect that c is greater than youth consumption. the smallest value of c-(30000+k) is zero.Now put k=105000-2c in dar and solve..we get c=45000 and K=15000..this means he borows 15000 per year or 1250 per month..hence option b