Problem
Paul consumes only two goods, DQ Blizzards (B) and McDonald's McFlurries (M) and considers them to be perfect substitutes, as shown by his utility function: U(P, H) = B + 2M. The price of Blizzards is $8 and the price of McFlurries is $5, and Paul's monthly income is $400. Knowing that he likes Blizzards, Paul's grandmother gives him a birthday gift certificate of $40 redeemable only at DQ. Though Paul is happy to get this gift, his grandmother did not realize that she could have made him exactly as happy by spending far less than she did. How much would she have needed to give him in cash to make him just as well off as with the gift certificate?