Malachi only consumes 2 goods: DVD rentals and coffee. His utility function is where is the…

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Malachi only consumes 2 goods: DVD rentals and coffee. His utility function is where is the…

Malachi only consumes 2 goods: DVD rentals and coffee. His utility function is

where

is the number of rentals and is cups of coffee. Malachi has $16 in his pocket right now, and he plans to spend all of the $16 on DVD rentals and coffee today.

b) Suppose that Malachi signs up for a membership that reduces the price of a rental to $2, while leaving his income unchanged.

Find the substitution effect, income effect and total effect of the decrease in the price of video rentals on Malachi’s consumption of rentals and coffee.

U(R. C) = R0.75 0.25
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Reference no: EM132069492

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