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Question 5. Matt's utility function is U(x1, x2)=min{3x1, 2x2} The price of each good is $1 and Matt's monthly income is $2500. Matt lives in...
Question 5. Matt's utility function is U(x1, x2)=min{3x1, 2x2} The price of each good is $1 and Matt's monthly income is $2500. Matt lives in SanDiego, but his firm wants him to relocate to Portland. In Portland, p1= $0.50 while the price of p2 and I remain the same.
A. Carefully illustrate Matt's utility maximizing choices of x1 and x2 and maximum utility in both San Diego and in Portland.
B. Clearly Matt will be better off with the relocation. What is his compensating variation (CV) for the move to Portland? Define compensating variation, illustrate on your graph above, and provide a specific dollar amount for Matt's compensating variation for the move to Portland.
