Question

Bernice has an income of 13. His utility function is given by u(x₁, x₂) = min(x₁, x₂). Let x₁ be her consumption of sweat tea (in fluid ounces), and x₂ is her money left for other stuff. Initially, the price of sweat tea is $2. Find her optimal choice of sweat tea and money. Then the price of sweat tea increases to $3. Find her new optimal choice. After you've done that, find the equivalent variation of the price change (i.e., the maximum amount she'd paid to avoid the new higher price). Again, it will help if you lay this out graphically.

please explain step by step and show the graph

Answer 1

〇.xi,%)= min (.x,, (.) 义: 13 13-4-33 3 2+1 t is 4.33 s, 아.hnnd choice of ue or lta and mo 13133 2 3 +I X2 Li 4-15 3.s Y-3-25 2 3-21 4.336-s