Question

The marginal product of labor in the production of computer chips is 50 chips per hour. The marginal rate of technical substitution of hours of labor for hours of machine capital is1/4. What is the marginal product of capital?

Answer 1

The marginal rate of technical substitution is defined at the ratio of the two marginal products. Here, we are given the marginal product of labor and the marginal rate of technical substitution. To determine the marginal product of capital, substitute the given values for the marginal product of labor and the marginal rate of technical substitution into the following formula:

MPi/MPk = MRTS, or 50/MPk = 1/4, or
MPK = 200 computer chips per hour.