Question

A consumer has ​$130 in monthly income to be spent on two goods Z and B. The price of good Z ​(Pz​) is ​$8.00. The Marginal Rate of Transformation​ (MRT) is equal to minus−2. That is 2 units of good B can be traded for 1 unit of good Z. What is the price of good B in $?

Answer 1

Price of B is $4

Step-by-step explanation:

Marginal rate of transformation is defined as the amount of a good x has to stop being produced inorder to produce a certain amount of a good y. Factors of production and technology used are assumed to be constant.

In this scenario the marginal rate of transformation is -2, that is 2 units of good B can be traded for 1 unit of good Z, mathematically

2 * Pb = Pz

Substitute price of Z

2* Pb = $8

Pb= 8 ÷ 2

On= $4