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Derive the consumer optimal consumption bundle

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Reference no: EM131699386

Consider the utility function u(x,y) = 2lnx + lny. Initially, the prices are px = $2/unit and py = $1/unit. The consumer has an income of $24. Illustrate your answers with graphs.

(a) Derive the consumer's optimal consumption bundle.

(b) Now suppose the price of good x increases to = $3/unit. What is the new optimal consumption bundle?

(c) Calculate the substitution effect and the income effect.Illustrate it on a graph.

(d) Calculate the compensating variation and equivalent variation of the price change.

Reference no: EM131699386

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