Joe has preferences over pizza (p) and beer (b) given by U = pb. The marginal utilities are MU_{p} = b and MU_{b }= p, and Joe's income is I = 60.
1. Find Joe's optimal consumption bundle when p_{p} = 3 and p_{b} = 3.
2. Find the income and substitution effects (on both goods) of an increase in the price of pizza to p_{p} = 6.
3. Find the compensating variation of the price increase.