Refer to the above table. The table gives the various combinations of Good A and Good B along Jane's indifference curve. The marginal rate of substitution when Jane goes from combination C to combination D is
A) 4:1.
B) 3:1.
C) 2:1.
D) 0.

Question

Quizplus · Accepted Answer

Moving from combination C (4 units of Good A and 2 units of Good B) to combination D (3 units of Good A and 2 units of Good B) results in a decrease of 1 unit of Good A and no change in the amount of Good B. Therefore, to remain on the same indifference curve, Jane would have to receive a compensation of 2 units of Good B, which gives a marginal rate of substitution of 2:1 (2 units of Good B for each unit of Good A).

Refer to the Above Table