Question

MRTS or Marginal rate of technical substitution (MRTS) for an isoquant is defined as Δ capital / Δ labor, which in turn means that, MRTS will be of higher value when labor is more productive than capital. Select one:

True

False

Answer 1

TRUE because MRTS = -K/L , which means that MRTS slopes downward which in turn implies that as labor increases ,it slopes decreases and gets flatter. MRTS will be of lower value when we need more labot (i.e labor is less productive) to replace 1 unit of capital (i.e capital is more productive). Similarly, MRTS will be of higher value , when we need less labor (i.e labor is more productive) than capital .