An army officer is charged with managing the food budget efficiently and appropriately. The officer is aware that there are two main suppliers that produce meals ready to eat (MREs) for soldiers in war zones. One supplier specializes in Mexican-themed MREs that feature hot sauce and corn, while the other specializies in Italian-inspired MREs that contain spaghetti and sauce. The main difference, however, is that the Mexican-themed MREs offer twice as many calories, designed either for sharing or to account for two meals when time to eat is limited. The officer thinks both options are equally valid; his preferences over MREs can be represented by u(x1,x2)=22x1+11x2, where x1 is Mexican-style MREs and x2 represents Italian-style MREs. The current price of x1 is $33, and the price of x2 is $11.
If the demand function for a good has an inverse relationship with the price of another good, those goods are complements. If there is a direct relationship between the demand for one good and the price of another, those goods are substitutes. In this problem, what is the relationship between goods 1 and 2?
A. They are complements, the demand for each good is inversely related to the price of the other.
B. They are unrelated because the demand functions for both goods do not contain the prices of the other.
C. They are substitutes; the demand function for each good is directly related to the price of the other.
D. While their demand functions do not contain the prices of the other good, they are contingent on the price ratio. If the price ratio crosses a threshold, demand for one good can go to zero. This is the special case of perfect substitutes.