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Calculate his compensating and equivalent variations

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Reference no: EM131452501

Picky eater Sam eats only waffles (x) or cereals (y) for breakfast. His preferences are described by U(x,y) = 6x+4y.

a) If his income is $24 and prices are px = py = $3, how much of each food will he consume?

b) If the price of cereals drops to $1, calculate his compensating and equivalent variations. Comment on your results.

Reference no: EM131452501

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