Suppose the production function for a firm is given by q = 4L0.75K0.25. If the firm currently has...
Question:
Suppose the production function for a firm is given by {eq}q = 4L^{0.75} \cdot K^{0.25} {/eq}. If the firm currently has 10 units of capital {eq}(K) {/eq} and 10 units of labor {eq}(L) {/eq}, then calculate the marginal rate of technical substitution {eq}(MRTS_{LK}) {/eq}.
Marginal Rate of Technical Substitution:
The marginal rate of technical substitution (MRTS) is the amount by which one input must be increased by in response to a decrease in the quantity of another input in order to produce the same level of output. The MRTS is equal to the marginal product of labor (MPL) divided by the marginal product of capital (MPK).
Answer and Explanation: 1
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View this answerThe marginal rate of technical substitution equals 3.
The first step is to calculate the MPL and MPK. The marginal product of labor is equal to the...
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Marginal Rate of Substitution: Definition, Formula & Examples
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Chapter 3 / Lesson 13
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The marginal rate of substitution shows how quickly a person will substitute or replace one product for a different one. Study the definition, formula, and examples of the marginal rate of substitution, how producers use it, and differing quantities.
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