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Hicksian and marshallian demands for bananas

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1. Rebecca derives utility from bananas and chocolate according to the utility function: u(b; c) = b.4 c .6 The prices of bananas and chocolate are Pb=$0.50 and Pc=$1. Assume her income is $10.

(a) Assuming that Rebecca has Y dollars of income, calculate her Marshallian (x(p; Y)) demand for bananas and chocolate using the short cut method. Compare your results using the Lagrangian method.

(b) Explain in words the difference between the Hicksian and Marshallian demands for bananas.

(c) Assume that the price of bananas increases to $1. Show in a graph the price change and then show on the same graph the compensated variation needed for Rebecca to remain at the same utility level.

Reference no: EM132484497

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