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Question: Let the utility function be given by U(x, y) = x^3/5 y^2/5.  If ma = 12, p_x = 2, and p_y = 1, wh...

Show transcribed image text Let the utility function be given by U(x, y) = x^3/5 y^2/5. If ma = 12, p_x = 2, and p_y = 1, what's the optimal consumption bundle? Let the indifference curve where this bundle is be the "old" indifference curve. |You can use previous results, but show enough work to get partial credit in case you make a mistake.| If the price of x increases to p'_x = 3, what's the new optimal bundle? Let this new optimal bundle be on the "new" indifference curve. Draw the two budget constraints and the two optimal bundles. [Make it big enough, because other lines and bundles will follow!] What bundle would the agent have chosen if the prices were still p_x = 2 and p_y = 1, but she had just enough money to reach the new indifference curve? How much money does she need? Draw the new bundle and the budget constraint going through it on the same graph as above. What is the maximum amount of money that she is willing to pay to avoid the price increase? Is this the CV or EV? A different thought experiment would be as follows. What bundle would the agent have chosen if the prices were still p_x = 3 and p_y = 1, but she had just enough money to reach the old indifference curve How much money does she need? Draw this bundle and the budget constraint going through it on the same graph as above. What is the amount of money that we need to give her to compensate for the price increase? Is this the CV or EV?

Let the utility function be given by U(x, y) = x^3/5 y^2/5. If ma = 12, p_x = 2, and p_y = 1, what's the optimal consumption bundle? Let the indifference curve where this bundle is be the "old" indifference curve. |You can use previous results, but show enough work to get partial credit in case you make a mistake.| If the price of x increases to p'_x = 3, what's the new optimal bundle? Let this new optimal bundle be on the "new" indifference curve. Draw the two budget constraints and the two optimal bundles. [Make it big enough, because other lines and bundles will follow!] What bundle would the agent have chosen if the prices were still p_x = 2 and p_y = 1, but she had just enough money to reach the new indifference curve? How much money does she need? Draw the new bundle and the budget constraint going through it on the same graph as above. What is the maximum amount of money that she is willing to pay to avoid the price increase? Is this the CV or EV? A different thought experiment would be as follows. What bundle would the agent have chosen if the prices were still p_x = 3 and p_y = 1, but she had just enough money to reach the old indifference curve How much money does she need? Draw this bundle and the budget constraint going through it on the same graph as above. What is the amount of money that we need to give her to compensate for the price increase? Is this the CV or EV?