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12 November, 14:40

A firm has a production process in which the inputs to production are perfectly substitutable in the long run. Can you tell whether the marginal rate of technical substitution is high or low, or is further information necessary? Discuss. In this example, the marginal rate of technical substitution (MRTS) is

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  1. 12 November, 14:54
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    Answer: MRTS = 1

    Explanation

    Since the inputs of the firm are perfectly substitute

    MRTS = DC/DL

    Where DC = change in capital

    = change labour

    This means that the graph of labour on x axis and capital on y axis is a straight line graph
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Home » Business » A firm has a production process in which the inputs to production are perfectly substitutable in the long run. Can you tell whether the marginal rate of technical substitution is high or low, or is further information necessary? Discuss.
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