Questions 7 (Slutsky Equation and Consumer Surplus). Robert's utility function for x₁ and x₂ is:

U (x₁, x₂) = x₁ * x₂

The price of x₁ is $1, the price of x₂ is $1, and his income is $20.

1. What is Robert's original optimal consumption bundle and utility?

1. Suppose the price of x₁ increases to $2. What is the compensating variation? In other words, how much money would Robert need to be given in order to leave him just as well off after the price change as he was before the price change?

1. What is Robert's equivalent variation if the price of x₁ increases to $2? In other words, how much money is Robert willing to pay to avoid the increase in price?