(Solution) - Suppose that Marion is considering smoking the first cigarette Marion s -(2025 Original AI-Free Solution)

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Suppose that Marion is considering smoking the first cigarette. Marion's utility of consumption in the current period is given by equation 11.12, where good c is cigarettes, good f is all other consumption, ?1 = 4, ?2 = 1, and ?3 = 2, and xc,0 = 0. Suppose the price of a unit of consumption for either good is $1 and that Marion has $10. Calculate Marion's optimal consumption given one future period of choice in which he has an additional $10. Now suppose that Marion suffers from simple projection bias. Calculate the consumption he will choose as a function of ?. What impact will projection bias have on his realized utility? Formulas in equations 11.13 to 11.22 may be useful in making these calculations.