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Explain the concept of (MRS) with the help of a numerical example . Also explain its behaviour along the Indifference Curve. |
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Answer» Marginal Rate of Substitution (MRS) means the rate at which a consumer is willing to sacrifice quantity of one good to obtain one more unit of the other good. Let the two goods consumed be A and B . Suppose the following combinations of these two goods have same utility level for him : `{:(" Good A"," Good B"," MRS"),(" "1," "8," "-),(" "2," "4," "4B:1A),(" "3," "1," "3B:1A):}` The consumer is willing to sacrifice 4B to obtain second unit of A. For the third unit of A, he is willing to sacrifice less because marginal utility of A decreases as he consumes more of A. |
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