Question 4. Equivalent variation. Suppose Michael's utility function is given by u(x1, x2) = min

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The demand curve is given as P is equal to 100 e to the power minus 0 .008Q and supply curve is

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Question 4. Equivalent variation. Suppose Michael's utility function is given by $u(x_1, x_2) = min(x_1, x_2)$ so these goods are perfect complements. At the original equilibrium $p_1$ is equal to $1 and $p_2$ is equal to $1. Michael has $80 to spend on the two goods. Now suppose due to inflation the price of $p_1$ increases to $3, while price of $p_2$ and consumer income remain the same. a) Compute Michael's optimal demand under the new price of $p_1$. What is his utility at this optimal consumption bundle? (6 points) b) Calculate the equivalent variation. In other words, how much money is Michael willing to pay to avoid the increase in price? (10 points)

          Question 4. Equivalent variation. Suppose Michael's utility function is given by $u(x_1, x_2) = min(x_1, x_2)$ so these goods are perfect complements. At the original equilibrium $p_1$ is equal to $1 and $p_2$ is equal to $1. Michael has $80 to spend on the two goods. Now suppose due to inflation the price of $p_1$ increases to $3, while price of $p_2$ and consumer income remain the same.
a) Compute Michael's optimal demand under the new price of $p_1$. What is his utility at this optimal consumption bundle? (6 points)
b) Calculate the equivalent variation. In other words, how much money is Michael willing to pay to avoid the increase in price? (10 points)

Question 4. Equivalent variation. Suppose Michael's utility function is given by u(x1, x2) = min(x1, x2) so these goods are perfect complements. At the original equilibrium p1 is equal to 1 andp2is equal to1. Michael has 80 to spend on the two goods. Now suppose due to inflation the price ofp1increases to3, while price of p2 and consumer income remain the same.
a) Compute Michael's optimal demand under the new price of p1. What is his utility at this optimal consumption bundle? (6 points)
b) Calculate the equivalent variation. In other words, how much money is Michael willing to pay to avoid the increase in price? (10 points)

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