Question

The marginal rate of technical substitution: A. equals the marginal product of capital times the marginal product of labor. B. is the horizontal distance between two isoquants. C. measures the rate at which marginal product declines as inputs are increased. D. measures the degree to which one input can be substituted for another, output held constant.

Answer 1

D. measures the degree to which one input can be substituted for another, output held constant.

Step-by-step explanation:

Marginal Rate of Technical Substitution is the rate at which producer gives up one input, in exchange of other input, maintaining the same output level.

So implicatively, it denotes the degree to which one input can be substituted for another, output held constant.

MRTS (K,L) = MP L / MP K = w / r ; Where :-

K = Capital, L = Labour, MP L = Marginal Productivity of Labour, MP K = Marginal Productivity of Capital, w = Wages, r = Rent

MRTS is diminishing, because of decreasing marginal productivities of factor inputs.