Question

Assume that a consumer consumes two commodities X and Y and makes five combinations for the two commodities  
Combination
Units of X
Units of Y
A
25
3
B
20
5
C
16
10
D
13
18
E
11
28
Calculate the Marginal Rate of Substitution and explain your answer. (10 marks)​

Answer 1

Answer:

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Answer 2

   Units of X  Units of Y

A      25             3

B     20             5

C     16              10

D      13              18

E      11              28

Marginal rate of substitution of the given data is as follows: - A--- -, B -- 5:2, C--- 4:5, D----3:8, E--- 2:10

Marginal rate of substitution - It implies that to increase quantity of one good an individual has to let go off some units of another good. In the above example in order to increase units of good Y, some units of good X are to be given up.  MRS= -| ∆Y/ ∆X |. However, MRS increases at diminishing rate i.e. less and less unit of X will be given up to procure more and more units of Y.

MRSxy (ΔX/ΔY) for the given data = A - -, B - 2.5, C - 0.8, D - 0.375 , E - 0.2