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Todd has a budget of $48 that he spends on pens (x) and pencils (y). Pens and pencils cost $1 each. Todd has a utility
Todd has a budget of $48 that he spends on pens (x) and pencils (y). Pens and pencils cost $1 each. Todd has a utility function U(x,y) = xy. 1. Find Todd's optimal basket. 2. Compute Todd's utility level Vo at the optimal basket. The price of a pen increases to P'x = $4. 3. Find Todd's new optimal basket. 4. Using the tangency condition and the utility condition, find Todd's compensated basket. 5. What is the substitution effect of the higher price on Todd's purchases of pens? And pencils
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