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Jane’s utility function has the following form: U(x,y)=x^2 +2xy The prices of x and y are...

Jane’s utility function has the following form: U(x,y)=x^2 +2xy

The prices of x and y are px and py respectively. Jane’s income is I.

(a) Find the Marshallian demands for x and y and the indirect utility function.

(b) Without solving the cost minimization problem, recover the Hicksian demands for x and y and the expenditure function from the Marshallian demands and the indirect utility function.

(c) Write down the Slutsky equation determining the effect of a change in px on the demand of x. Indicate which component represents the total price effect, which component represents the substitution effect, and which component represents the income effect.

(d) Now assume that px = 64, py = 2, and I = 100. Using the Slutsky equation from part (c) compute the total, substitution, and income effect of a change in px on the demand of x.

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