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How is marginal rate of technical substitution measured? choices choice (4) response measures trade-off between two factors of production while keeping output c
How is marginal rate of technical substitution measured? Choices CHOICE (4) RESPONSE Measures trade-off between two factors of production while keeping output constant a. AX2 Ax b. MP (x', x) MPl (x, x?) C. d. All a. , b. and c. are correct
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Nidhi taparia![best-answer]()
Marginal Rate of Technical Substitution (MRTS) is basically the rate at which one factor has to be increased when another factor is decreased, keeping the total output (that is produced by using both factors in combination) constant. [So Option a. is automatically correct] MRTS can also be said to be the slope of the isoquant (because that depicts various combinations of the 2 factors that all lead to producing the same level of output). Because of this reason, MRTS = ∆K / ∆L or MRTS = ∆x1 / ∆x2 (where x1 = factor 1 and x2 = factor 2) Now since when we take partial derivatives of whole output function wrt each factor individually, it becomes equal to their Marginal Products. Hence, MRTS = (MP of x1) / (MP of x2) Now coming to the question, option a. is definitely true. Options b. and c. also appear to be true, but there seems to be some printing error in both of them. If these two options conform to the two definitions I stated earlier, then yes ALL OPTIONS ARE CORRECT.