Problem
Lou's preferences over pizza (x) and other goods ( y) are given by U(x, y) xy, with associated marginal utilities MUx = y and MUy = x. His income is $120.
a) Calculate his optimal basket when Px = 4 and Py = 1.
b) Calculate his income and substitution effects of a decrease in the price of food to $3.
c) Calculate the compensating variation of the price change.
d) Calculate the equivalent variation of the price change. 5.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.