Suppose that the marginal product of a firm's labour is 10 units of output per hour. Also assume that the marginal product of the firm's capital is 30 units of output per hour. In this case, the marginal rate of technical substitution for labour with capital is

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Quizplus · Accepted Answer

The marginal rate of technical substitution (MRTS) is the rate at which a firm can substitute one input for another while keeping output constant. In this case, the MRTS is equal to the ratio of the marginal product of labour to the marginal product of capital, which is 10/30 = 1/3.

Suppose That the Marginal Product of a Firm's Labour Is