22/01/2020 Marginal rate of technical substitution - Wikipedia

Marginal rate of technical substitution

In microeconomic theory, the Marginal Rate of
Technical Substitution (MRTS)—or Technical Rate
of Substitution (TRS)—is the amount by which the
quantity of one input has to be reduced ( ) when one
extra unit of another input is used ( ), so that
output remains constant ( ).

where and are the marginal products of input 1

An isoquant map where Q3 > Q2 > Q1.At
and input 2, respectively. any point on any isoquant, the marginal
rate of technical substitution is the
Along an isoquant, the MRTS shows the rate at which one absolute value of the slope of the
input (e.g. capital or labor) may be substituted for another, isoquant at that point.
while maintaining the same level of output. Thus the
MRTS is the absolute value of the slope of an isoquant at
the point in question.

When relative input usages are optimal, the marginal rate of technical substitution is equal to the
relative unit costs of the inputs, and the slope of the isoquant at the chosen point equals the slope
of the isocost curve (see Conditional factor demands). It is the rate at which one input is
substituted for another to maintain the same level of output.

See also
Marginal rate of substitution (the same concept on consumption side)
Marginal rate of transformation (slope of the production-possibility frontier)

References
Mas-Colell, Andreu; Whinston, Michael; Green, Jerry (1995). Microeconomic Theory. Oxford:
Oxford University Press. ISBN 0-19-507340-1.

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