The marginal rate of technical substitution in production is analogous to the marginal rate of substitution for the consumer's optimization problem in that
A)the slope of the consumer's indifference curve is the opposite of the ratios of the marginal utilities of the two goods, whereas the slope of the production isoquant is the opposite of the ratio of the marginal product of labor relative to the marginal product of capital.
B)the slope of the consumer's indifference curve is equal to the ratio of the marginal utilities of the two goods, whereas the slope of the production isoquant is the opposite of the ratio of the marginal product of labor relative to the marginal product of capital.
C)the slope is equal in both instances.
D)they are calculated by subtracting the price ratio from the output level.

Question

Quizplus · Accepted Answer

The marginal rate of technical substitution (MRTS) in production measures the rate at which one input (e.g., labor) can be substituted for another (e.g., capital) while keeping output constant, analogous to the marginal rate of substitution (MRS) in consumption, which measures the rate at which a consumer can substitute one good for another while maintaining the same level of utility. The slope of the consumer's indifference curve represents the MRS and is the ratio of the marginal utilities of two goods, while the slope of the production isoquant represents the MRTS and is the ratio of the marginal products of two inputs, typically labor and capital.

The Marginal Rate of Technical Substitution in Production Is Analogous