Problem
Assume that Brad had a budget of $24 a month to spend on water (C) and juice (E). Water cost $6 per pound and juice cost $12 per package. Brad's marginal rate of substitution is: M RSCE = 1+E C and the formula for his indifference curve is: U 1+3C = E After being recommended by her doctor to stop drinking water for one month, Brad was left with only juice to keep him up during late night study sessions and early morning classes. His friends know how much Brad likes water so they would like to help him through the month. Calculate the compensating variation which brad's friends could offer him.
With all steps calculate the compensating variation and show how calculating the compensation variation is done.