Doug's present and future consumption are perfect substitutes. He does however discount future consumption by a bit. His utility function is
U(C₀,C₁)= C₀+ C₁/(1 + a)where a is the discount rate he applies to C₁.
i)What is the shape of Doug's indifference curves?
ii)Show that if i exceeds a then C₀= 0.
iii)Show that if i<a then C₁= 0.

Question

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The Answer of Doug's present and future consumption are perfect substitutes. He does however discount future consumption by a bit. His utility function is U(C₀,C₁)= C₀+ C₁/(1 + a)where a is the discount rate he applies to C₁. i)What is the shape of Doug's indifference curves? ii)Show that if i exceeds a then C₀= 0. iii)Show that if i1 = 0.

Doug's Present and Future Consumption Are Perfect Substitutes