Assume a perfect capital market with certainty for this question. A single-owner firm faces a two-period planning proble

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Assume a perfect capital market with certainty for this
question. A single-owner firm faces a two-period planning problem
with the transformation curve (𝐾1 + 3) 2 + 𝐾2 2 = 16 and initial
resources 𝐾1 = 1. market interest rate r=4.5%.
(a) Work out the firm’s initial wealth maximization problem and
illustrate your answer in a diagram. (10 marks)
(b) What happens to the firm’s decision making if the market
interest rate increases? (5 marks)
(c) At what point does the firm stop borrowing from the capital
market in time 1? (10 marks)
(d) How is the joint choice of production and consumption made
for a single-owner firm? Illustrate in a diagram. (5 marks)