Context: I am working through the book Differential and Integral Calculus by N. Piskunov. The exercise in the image is from Chapter VIII which has the following subsections:

What I have tried:
- Using the first order differential approximation: $f(x, y) \approx f(x_0, y_0) + f_{x}(x_0, y_0)\Delta x + f_{y}(x_0, y_0)\Delta y$, which I realized leads to more square roots.
- Intuitively, I thought it's something related to: $\sqrt{1+x} \approx 1 + \frac{1}{2}x$ and $\frac{1}{\sqrt{1+x}} \approx 1 - \frac{1}{2}x$ (for small values of $x$), but I don't know how arrive at the given answer formally.
A hint or a full answer would be greatly appreciated.

Your last approximations $(1+x)^\alpha\approx 1+\alpha x$ point in the correct direction. After that use that for small numbers $x,y$ also $(1+x)(1+y)\approx 1+x+y$.
If you want to make it a real challenge then try to collect the next-order terms, that is, everything quadratic in $x,y,z$, to get an idea of how large the truncation error is.