>> Business Economics
Johnny has allocated $30 toward coffee and tea and feels that coffee and tea are perfect substitutes. Due to differences in caffeine levels, his MRS of tea for coffee equals 2. If coffee and tea sell for the same price, Johnny will a. spend all $30 on tea. a. spend all $30 on tea. b. spend all $30 on coffee. c. spend $20 on coffee and $10 on tea. d. be indifferent between any bundle of coffee and tea costing $30 Can someone explain why the answer is B? From my understanding, MRS = -U1 / U2 or dq2 / dq1 and I don't know how to apply that.