The marginal rate of technical substitution of labor for capital (MRTS_LK)tends to be higher A) the larger the quantity of capital already employed. B) the lower the quantity of capital already employed. C) when a firm is choosing baskets that are technologically inefficient. D) in the short-run compared to the long-run.

Question

Quizplus · Accepted Answer

The marginal rate of technical substitution of labor for capital (MRTS_LK) tends to be higher when the quantity of capital already employed is larger. This is because when a firm has already employed a large amount of capital, the marginal productivity of each additional unit of capital decreases, making labor relatively more productive. Therefore, firms must substitute more labor for each unit of capital to maintain a constant level of output, resulting in a higher MRTS_LK.

The Marginal Rate of Technical Substitution of Labor for Capital