Question: Problem 2 [20 pts] Consider the utility function u(x1,x2) = 3]n(x1) + 2]n(x2). Initially p1 = $1 and p2 = $2. Income is $ 15.

Problem 2 [20 pts] Consider the utility function u(x1,x2) = 3]n(x1) + 2]n(x2). Initially p1 = $1 and p2 = $2. Income is $ 15. 1. Derive the optimal consumption bundle. [05 pts] 2. If the price of good 1 doubles to $ 2, derive the new consumption bundle. [03 pts] 3. Decompose the the change in consumption of good 1 into the income and substitution effect, and illustrate your answer with a graph. [05 pts] 4. Compute the Compensation variation (CV) and the Equivalent Variation (EV). [07 pts]

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