Identify the compound preposition. You may substitute margarine in place of butter. in place of you may substitute of butter margarine in place

"in place of", is the correct answer.

A compound preposition is basically a preposition made by combining the preposition with a noun, an adjective or an adverb. It is also possible to make three word compound prepositions by essentially sandwiching a noun, an adjective or an adverb in between two prepositions. Which is what "in place of" does within the sentence.