**Utility and Budget Analysis of Office Friendly**3. **Office Friendly's Consumption Choices**Office Friendly consumes donuts ($ d $) and other goods ($ c $). His preferences are represented by the utility function:\[ u(d, c) = 8\sqrt{d} + c. \]Office Friendly has a budget of $200 to allocate, with the initial prices being $ p_D = $1 $ and $ p_C = $1 $. Subsequently, the price of a donut increases to $ p_D = $2 $.**Questions to Analyze:**(i) Determine Office Friendly’s optimal consumption bundles before and after the donut price increase.(ii) Calculate the compensating variation corresponding to the increase in the price of donuts.(iii) Assess the equivalent variation resulting from the price change.

3. Office Friendly consumes donuts (d) and other goods (c). His preferences are given by the utility function u(d, c) = 8vd + c. Office Friendly has $200 to spend, and the prices are pp = $1 and a donut rises to pp = $2. pc = $1. Then, the price of %3D (i) Find Office Friendly's optimal bundles before and after the price rise. (ii) Find the value of the compensating variation associated with the price rise. (iii) Find the value of the equivalent variation.

3. Office Friendly consumes donuts (d) and other goods (c). His preferences are given by the utility function u(d, c) = 8vd + c. Office Friendly has $200 to spend, and the prices are pp = $1 and a donut rises to pp = $2. pc = $1. Then, the price of %3D (i) Find Office Friendly's optimal bundles before and after the price rise. (ii) Find the value of the compensating variation associated with the price rise. (iii) Find the value of the equivalent variation.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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