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 (

-\Delta x_2

) when one extra unit of another input is used (

\Delta x_1 = 1

), so that output remains constant (

y = \bar

MRTS(x_1,x_2) =-\frac = \frac

where

MP_1

and

MP_2

are the

marginal product In economics and in particular neoclassical economics, the marginal product or marginal physical productivity of an input (factor of production) is the change in output resulting from employing one more unit of a particular input (for instance, th ...

s of input 1 and input 2, respectively. Along an

isoquant An isoquant (derived from quantity and the Greek word iso, meaning equal), in microeconomics, is a contour line drawn through the set of points at which the same quantity of output is produced while changing the quantities of two or more inputs. ...

, the MRTS shows the rate at which one input (e.g. capital or labor) may be substituted for another, 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 In economics, a conditional factor demand is the cost-minimizing level of an input (factor of production) such as labor or capital, required to produce a given level of output, for given unit input costs ( wage rate and cost of capital) of the inp ...

). It is the rate at which one input is substituted for another to maintain the same level of output.

References

* Production economics Marginal concepts {{microeconomics-stub de:Grenzrate der Substitution#Grenzrate der Faktorsubstitution

See also

References