Suppose Amjad’s preferences for pants and shirts are represented by: U(x1,x2 )=x1^2 x2^3, and he faces...

Suppose Amjad’s preferences for pants and shirts are represented by: U(x1,x2 )=x1^2 x2^3, and he faces a linear

budget constraint, 2x1+ x2=50. Given that the price of good 1 increases to 4, what are (1) the compensating and (2)

equivalent variations? You must set up the Lagrangian and derive the demand functions for this question. Be sure

to clearly identify which prices, old or new, are used to derive the values for EV vs. CV, and which utility, old or new,

is used to derive EV vs. CV.

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Rahul Sunny answered 3 weeks ago

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