Let U(x,y) = $\sqrt { x y }$ With MU_x = $\frac { \sqrt { y } } { 2 \sqrt { x } }$

question 8

Multiple Choice

Let U(x,y) = $\sqrt { x y }$ with MU_x = $\frac { \sqrt { y } } { 2 \sqrt { x } }$ and MU_y = $\frac { \sqrt { x } } { 2 \sqrt { y } }$ . Let I = $100, P_x = $25 and P_y = $10 be the initial set of prices and income. Now, let P_x fall to $10. What is the approximate compensating variation for this change in prices?

• A) 24
• B) 30
• C) 34
• D) 40

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