Thursday, August 6, 2015

Marginal rate of technical substitution

Links to all courses
Marginal rate of technical substitution (MRTS) or just RTS is the amount by which the quantity of one input has to be reduced (∆x2) when one extra unit of another input is used (∆x1) so that output remains constant.
RTS is measured by the slope of the tangent to a point on an isoquant.
RTS = -dx2/dx1
let q = f(x1, x2)
∴ dq = f1dx1 + f2dx2
Since, dq = 0 for movements along an isoquant
f1dx1 + f2dx2  = 0
=> f1dx1 = -f2dx2
=> f1/f2 = -dx2/dx1 = RTS
So, RTS at a point equals to the ratio of the MP of of x1 to the MP of x2 at that point.
∴ RTS = MP1/MP2
[Because, f1= MP1]
Source:
1. Wikipedia

No comments:
Write comments

Hey, we've a very popular astronomy portal in Bangla language. If You know Bangla, You'll like it - sky.bishwo.com
Join Our Newsletter