Explain the marginal rate of substitution with the help of a numerical example.

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Solution

Dear student.

The rate at which units of a commodity are sacrificed to consume additional unit of another commodity is called Marginal Rate of Substitution or Opportunity cost

MRS = Amount of good X sacrificed / Amount of good Y gained

Production Possibility A B C D E

Good X 10 8 5 3 0

Good Y 0 1 2 3 4

Regards

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