Exercises · Q9
Q.
From the indifference schedule given below, calculate the Marginal Rate of Substitution of X for Y (MRSxy) between successive combinations and state whether it is diminishing.
| Combination | Units of X | Units of Y |
|---|---|---|
| A | 1 | 12 |
| B | 2 | 8 |
| C | 3 | 5 |
| D | 4 | 3 |
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Start your 14-day free trial to unlock the full solution →MRSxy is calculated as the fall in Y divided by the rise in X between successive combinations:
| Move | Rise in X | Fall in Y | MRSxy |
|---|---|---|---|
| A to B | 2 - 1 = 1 | 12 - 8 = 4 | 4 / 1 = 4 |
| B to C | 3 - 2 = 1 | 8 - 5 = 3 | 3 / 1 = 3 |
| C to D | 4 - 3 = 1 | 5 - 3 = 2 | 2 / 1 = 2 |
The consumer gives up 4 units of Y for the 2nd unit of X, only 3 units of Y for the 3rd unit of X, and only 2 units of Y for the 4th unit of X — the willingness to sacrifice Y for each additional unit of X keeps falling as more X is acquired. …
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