Jane derives utility only from her caffeine intake. She can consume coffee or tea, and a cup of coffee contains four times as much caffeine as a cup of tea.
(a) Draw a graph containing Jane's indifference curves, and explain how you obtained them. Be sure to label and number the axes of your diagram.
(b) Suppose Jane's income is $10. The price of tea is $0.50/cup, and the price of coffee is $1/cup. Write the equation for Jane's budget constraint. On the same grap h as in part (a), draw Jane's budget constraint.
(c) How many cups of tea and coffee will Jane consume? Explain intuitively and mark the optimal bundle on your graph.