Explain the concept of marginal rate of technical substitution. What does a MRTS of 4 mean?...

Explain the concept of marginal rate of technical substitution. What does a MRTS of 4 mean? Is there any difference between production function and Iso-quant? Explain institutively what might cause the marginal product of labor to become negative.

Expert Solution

Marginal rate of technical substitution is the rate at which producer can switch between the inputs to maintain the same level of output. For a production function with two inputs, labour and capital, it is the rate at which number of capital units can be substituted for one unit of labour. If the marginal rate of Technical substitution is 4, then it implies that 1 unit of labour can be replaced by 4 units of capital.

There is a difference between the production function and isoquant, in that, production function exhibits the relationship between the output and the input with no restriction on the level of output, while the isoquant is drawn to exhibit different combinations of inputs that generate the same level of output

Marginal product of labour becomes negative due to diminishing marginal returns. As more and more workers are added, lack of coordination and other management problems result in lower and lower additional product. Due to this reason the marginal product starts falling when more workers are added

Rahul Sunny answered 1 year ago

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