Robert’s utility function for x1 and x2 is: U (x1, x2) = x1 * x2 The price of x1 is $1, the price of x2 is $1, and his income is $20.

a) What is Robert’s original optimal consumption bundle and utility?

b) Suppose the price of x1 increases to $2. What is the compensating variation? In other words, how much money would Robert need to be given in order to leave him just as well off after the price change as he was before the price change?

c) What is Robert’s equivalent variation if the price of x1 increases to $2? In other words, how much money is Robert willing to pay to avoid the increase in price?