Marginal rate of technical substitution

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In economics, the marginal rate of technical substitution (MRTS) or the Technical Rate of Substitution (TRS) is the amount by which the quantity of one input has to be reduced ( − Δx2) when one extra unit of another input is used (Δx1 = 1), so that output remains constant (y = \bar{y}).

MRTS( x_1 , x_2 ) = \frac{\Delta x_2}{\Delta x_1} = - \frac{MP_1}{MP_2}

where MP1 and MP2 are the marginal products of input 1 and input 2, respectively.

Along an isoquant, 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. The MRTS can also been seen as the slope of an Isoquant at the point in question. Since the Isoquant is generally downward sloping and marginal products are generally positive, the MRTS is generally negative.

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