Marginal Rate of Technical Substitution

 

Marginal rate of technical substitution (MRTS) indicates the rate at which one factor (labor) can be substituted for the other input (capital) in the production process of a commodity without changing the level of output or production. The marginal rate of technical substitution of labor for capital (MRTS_L,K) can be defined as the units of capital which can be replaced by one unit of labor, keeping constant the level of output. Mathematically, it is represented as

Table 2: marginal rate of technical substitution (MRTS)
Combination	Capital (K)	Labor (L)	MRTSL,K	Output
A	12	1		100
B	8	2	4:1	100
C	5	3	3:1	100
D	3	4	2:1	100
E	2	5	1:1	100

Given table 2 represents various combinations of inputs, all of which yield the same level of output, i.e. 100 units, to the producer.

Comparing combination A with B, we see that 4 units of capital is replaced by 1 unit of labor, without altering the output. Therefore, 4:1 is the marginal rate of technical substitution in this case.

 Similarly, if we compare combination B with C, we can find that the MRTS for this case is 3:1. Likewise, MRTS between C and D, and D and E is 2:1 and 1:1, respectively.

Figure 2: marginal rate of technical substitution

Figure 2 is a graphical representation of MRTS. In the figure, MRTS between any two points is given by the slope between those points.

For example, MRTS between the points A and B can be found as

In the same way, MRTS at any particular point on the isoquant curve can be calculated by finding the slope of the line that is tangent to that point on the curve.

  Adopted from:https://www.businesstopia.net/economics/micro/isoquants-meaning-assumptions-and-properties