Question
Tyler consumes video games and other goods. His utility function is (,)=100(^2/2) +, where is the number of video games consumed, which is an integer
Tyler consumes video games and other goods. His utility function is (,)=100(^2/2) +, where is the number of video games consumed, which is an integer amount, and is the money to be spent on other goods. Tyler has an income $10,000. Suppose the price of video games increases from $50 to $80. (a) How does Tyler's net consumer's surplus change as a result of the price change? (b) Calculate the compensating and equivalent variations for Tyler. (Hint: With a quasilinear utility function (,)=()+, the inverse demand function for the -good is given by ()=().)
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