The marginal rate of technical substitution is
A) the market rate of exchange between labor and capital.
B) the rate at which the firm can substitute labor for capital while holding total cost constant.
C) the rate at which the firm can substitute labor for capital while holding output constant.
D) both a and b
E) both a and c

Question

Quizplus · Accepted Answer

The marginal rate of technical substitution (MRTS) is the rate at which a firm can substitute one input (in this case, labor) for another input (in this case, capital) while holding output constant. Option A is incorrect because labor and capital do not have a fixed market rate of exchange. Option B is incorrect because total cost could change as the firm substitutes inputs, depending on the relative prices of the inputs. Only option C accurately describes the MRTS.

The Marginal Rate of Technical Substitution Is