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Shania consumes music CDs and food Her utility function

Shania consumes music CDs and food. Her utility function is U(F,C) = 50√C+F, where C is the number of CDs and F is pounds of food. Her monthly income is $M, food costs $1 per pound, and CDs cost $10 per CD. Assume that M is large enough such that Shania buys positive amounts of both CDs and food. If the price of CDs rises to $12.50 per CD, how does her best choice of CDs change? Dissect the change in purchases into substitution and income effects. What is the compensating variation for the price change?

Apr 03 2020 View more View Less

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