Answer to Question #275588 in Microeconomics for angela

Question

Compare and contrast marginal rate of substitution and marginal rate

technical substitution.

Answer 1

Marginal rate of substitution

1.MRS is the rate at which a consumer is willing to trade one good for another to maintain a constant level of utility.

2.MRS is the slope of indifference curve

3.MRS declines as we move down the indifference curve. That is, the consumer's willingness to give up more units of one good diminishes as another good is consumed more and more.

4.MRS focuses on demand

Marginal rate of technical substitution

1.MRTS is the amount by which the number of one input must be reduced when using additional units of the other input so that the output remains constant.

2.MRTS has a slope of an isoquant.

3.MRTS decrease as you move down the isoquant. That is, as one input increases, the manufacturer is willing to substitute smaller and smaller quantities of another input for increasing use of that input

4.Focuses on production.