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How to solve this question? Richard's preferences over chocolate, c, and money, m, can be represented by the utility function: u(c, m) = 6c +
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Richard's preferences over chocolate, c, and money, m, can be represented by the utility function:
u(c, m) = 6c + m + 6 (c rc) + (m rm)
where rc is his chocolate reference point, rm is his money reference point, and the function is defined as:
(x) = x when x >= 0
(x) = 1.5x when x < 0
If his reference point is the status quo (that is, his initial endowment), what is the maximum price Richard would be willing to pay to buy a chocolate?
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