|Question||Lou’s preferences over pizza (x) and other goods (y) are given by U(x, y) = xy, with associated marginal utilities MUx = y and MUy = x. His income is $120.
a) Calculate his optimal basket when Px = 4 and Py = 1.
b) Calculate his income and substitution effects of a decrease in the price of food to $3.
c) Calculate the compensating variation of the price change.
d) Calculate the equivalent variation of the price change.