Suppose Stan Lee's preference for films (f) and concerts (c) is given by U(f,c) = fc. Let p1 be the price of films, p2 be the price of concerts, and M be Stan's wealth.

(a) Derive Stan's price elasticity of demand for films.

(b) What is Stan's utility at his optimal bundle when p1 = 1, p2 = 8, and M = 16?

(c) Suppose that the price of films goes up to p1 = 4. How much wealth would Stan need in order to get exactly the same level of utility as in question 2(e)?

(d) What are Stan's income and substitution effects using the Hick's decomposition when wemovefromp1 =1,p2 =8,andM =16top1 =4,p2 =8,andM =16?

(e) Roughly sketch the decomposition in question 3(g).