A movement down along a given isoquant causes the marginal rate of technical substitution to:
A)increase.
B)stay the same.
C)decrease.
D)cannot be determined without additional information.

Question

Quizplus · Accepted Answer

A movement down along a given isoquant indicates a decrease in capital use and an increase in labor use, which implies diminishing marginal returns to labor and increasing marginal returns to capital. As a result, the marginal rate of technical substitution decreases because it measures the rate at which labor can be substituted for capital while holding output constant. Therefore, there is a trade-off between capital and labor, and the more labor is used, the less additional units of capital are needed to maintain output constant.

A Movement Down Along a Given Isoquant Causes the Marginal