Explain why the marginal rate of technical substitution is likely to diminish as more and more labor is substituted for capital.

1 answer:

8 0

Answer: This is because the marginal rate of technical substitution is the ratio of the marginal product of labour to that of capital and for the output to be constant opportunity cost comes in, one input has to be reduced to increase the other input.

Explanation:

The marginal rate of technical substitution (MRTS) shows the amount by which the quantity of an input can be lowered when an extra unit of another input is utilized on order for the output to remain constant.

The marginal rate of technical substitution is likely to reduce as more capital is substituted for labor because the marginal rate of technical substitution is the ratio of the marginal product of labour to that of capital and for the output to be constant opportunity cost comes in, one input has to be reduced to increase the other input.

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