The rate at which one input can be traded for another at a point along the production possibilities frontier is called the
A)marginal rate of transformation.
B)marginal rate of technical substitution.
C)input price ratio.
D)output price ratio.

Question

Quizplus · Accepted Answer

The rate at which one input can be traded for another at a point along the production possibilities frontier is known as the marginal rate of transformation (MRT). It shows the tradeoff between producing one good and producing another, at the margin. Thus, option A is the correct choice. Option B is not correct as the marginal rate of technical substitution (MRTS) refers to the rate at which one input can be substituted for another while keeping the level of output constant. Option C and D are not correct as input price ratio and output price ratio relate to the price of the inputs and outputs respectively, and do not show the tradeoff between producing two goods along the production possibilities frontier.

The Rate at Which One Input Can Be Traded for Another