Question
At his current consumption levels, Joe's marginal rate of substitution of pizza slices for cans of Coke is given by 2. (Recall that, as per
At his current consumption levels, Joe's marginal rate of substitution of pizza slices for cans of Coke is given by 2. (Recall that, as per our convention, this corresponds to plotting pizza on the horizontal axis and Coke on the vertical axis.) The price of a slice of pizza is equal to $2, whereas the price of a can of Coke is $1.50. Suppose Joe is currently spending all his income on pizza and Coke and consuming positive amounts of both goods. Would Joe be better off by increasing his consumption of pizza at the expense of Coke; or increase the consumption of Coke at the expense of pizza; or is his current consumption bundle optimal? (You can ignore integer constraints in your answer, that is, assume that Joe can consume fractions of slices of pizza and fractions of cans of Coke.)
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