The marginal rate of technical substitution is
A) the rate at which the firm can substitute labor for capital while holding total cost constant.
B) the rate at which the firm can substitute labor for capital while holding output constant.
C) the slope of the isocost curve.
D) both a and c
E) none of the above

Question

Quizplus · Accepted Answer

Marginal rate of technical substitution (MRTS) is the rate at which a firm can substitute one input for another while keeping the level of output constant. Therefore, option B is the correct answer. Option A is not correct because holding total cost constant is not necessary for MRTS. Option C is not the complete definition of MRTS as it only relates to the slope of the isocost curve, and MRTS is a concept that goes beyond the isocost curve.

The Marginal Rate of Technical Substitution Is