Shania consumes music CDs and food. Her utility function is U(F, C) = 50C +F where C

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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. For this utility function, MUF = 1 and MUC = 25/√c. Her monthly income is $M, food costs $1 per pound, and CDs cost $10 per CD. If the price of CDs rises to $12.50 per CD, how does her best choice of CDs change? Dissect her change in purchases into substitution and income effects. What is the compensating variation for the price change?
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Microeconomics

ISBN: 978-1118572276

5th edition

Authors: David Besanko, Ronald Braeutigam

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