The marginal rate of technical substitution in production is analogous to the marginal rate of substitution for the consumer's optimization problem in that they are calculated by subtracting the price ratio from the output level.

Question

Quizplus · Accepted Answer

The marginal rate of technical substitution in production is calculated by dividing the marginal product of one input by the marginal product of another input, while the marginal rate of substitution for the consumer's optimization problem is calculated by dividing the marginal utility of one good by the marginal utility of another good. These calculations do not involve subtracting price ratios from output or utility levels. The marginal rate of technical substitution (MRTS) involves the change in the proportions of two inputs in order to maintain the same level of output. It is measured by the slope of the isoquant curve. On the other hand, the marginal rate of substitution (MRS) for a consumer measures the rate at which they are willing to trade off one good for another while maintaining the same level of utility. It is measured by the slope of the indifference curve. The two concepts are not directly related in the way described in the statement.

The Marginal Rate of Technical Substitution in Production Is Analogous