Question #65485

Suppose that Billy's preferences over baskets containing milk (good x), and coffee (good
y ), are described by the utility function U(x; y ) = xy +2x. Billy's corresponding marginal
utilities are, MUx = y + 2 and MUy = x:
Use Px to represent the price of milk, Py to represent the price of coffee, and I to represent
Billy's income.
Suppose that Px = $1 and I = $40. Find the equivalent variation for an
increase in the price of coffee from Py1 = $4 to Py2 = $5

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