Ask Question, Ask an Expert

+61-413 786 465

info@mywordsolution.com

Ask Microeconomics Expert

Economics


Home >> Microeconomics

a) The marginal rate of technical substitution is

MRTS = ΔK/ΔL


If labor input, L, is decreased by one unit, by how much must one increase capital, K, to hold production constant? The answer is given by MRTS.

b) To show the relation with the marginal products, we start by the following reasoning: Suppose we increase the input of labor, ΔL, by one unit. Depending on how productive the labor is, this will increase production. The total increase will then be MPL*ΔL = Δq.

Suppose we then decrease the input of capital, ΔK, by an amount that makes the associated decrease in production just as large as the previous increase. We then get that MPK*ΔK = -Δq. Summing these two together must give a total change of zero:

MPL*ΔL = Δq
MPK*ΔK = -Δq

MPL*ΔL+MPK*ΔK = 0


Now, rearrange the last expression: Move MPK*ΔK over to the right-hand side, and then divide both sides by MPK and by -ΔL. You will then have an expression for MRTS:

This is the relation we asked for.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91568663
  • Price:- $15

Priced at Now at $15, Verified Solution

Have any Question?


Related Questions in Microeconomics

Question from time to time including but not limited to the

Question: From time to time, including but not limited to the 1971-3 experience in the US, wage and price controls have been imposed to reduce inflation. Yet when these controls were eventually lifted, the price index qu ...

Question the taxpayer relief act of 1997 created the roth

Question: The Taxpayer Relief Act of 1997 created the Roth IRA, which permits qualifying individuals to make after-tax retirement contributions of up to $2,000 annually. Contributions to a Roth IRA are not tax-deductible ...

Question a recent graduate has submitted his application to

Question: A recent graduate has submitted his application to the World Bank for a position in the Young Professional Program. He knows the Bank hires 4% of its applicants. Only some of the applicants receive an interview ...

Question - the shadow banking system is larger and has

Question - The "shadow banking system" is larger (and has become more important to the US money and capital markets) than the commercial banking system. But, unlike commercial banks, many types of "shadow banks" ---money ...

A in 1994 the marginal cost of producing the power mac was

a) In 1994, the marginal cost of producing the Power Mac was about $1,500 per unit, and a rough estimate of the monthly demand curve was: P = 4,500 - .15Q. At the time, what was Apple's optimal output and pricing policy? ...

Question suppose the fed sells 5 million worth of bonds to

Question: Suppose the Fed sells $5 million worth of bonds to Econobank. What happens to the reserves of the bank? What happens to the money supply in the economy as a whole if the reserve requirement is 10%, all payments ...

Question drug law enforcers can concentrate their efforts

Question: Drug law enforcers can concentrate their efforts on reducing supply or demand, removing suppliers or removing demanders. a. Assuming that your goal is to raise the price of drugs to a prohibitive level, should ...

Question perform hypothesis tests for the followingper

Question: Perform hypothesis tests for the following: Per consumer reports, less than 60% of cars are kept by the orginal owners for more than 5 years. GM, Ford and Chysler conducted a simple random sample and found that ...

Question why do we use the perfectly elastic world price

Question: Why do we use the perfectly elastic world price curve as a sort of benchmark to evaluate social wellbeing in the case of international trade and import tariff while only using demand curve (willingness to pay) ...

Question a donor wishes to endow an engineering scholarship

Question: A donor wishes to endow an engineering scholarship at USYD. The endowment may be made by a lump-sum deposit to a special foundation set up by the university for such purposes. The foundation director believes t ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As

Follow Us

© Copyright 2013-14 mywordsolution.com All rights reserved