Marginal Rate Of Technical Substitution
The marginal rate of technical substitution (MRTS) is a measure of the rate at which one input can be substituted for another input, while keeping the production function unchanged. It is calculated by the ratio of the marginal product of each input with respect to the other input.
The marginal product of an input measures the amount of output that is produced by increasing the input by one unit. The marginal rate of substitution is therefore a measure of the rate at which one input can be substituted for another input, while keeping the production function unchanged.
The marginal rate of technical substitution is an important concept in economics because it helps to explain how firms make production decisions. When a firm is deciding which inputs to use, it will take into account the marginal rate of substitution of each input. The firm will choose inputs that minimize the cost of production while producing a given amount of output.
