True or False: When the MRTS equals the factor price ratio, the additional output per dollar...
True or False:
When the MRTS equals the factor price ratio, the additional output per dollar spent on each input is equal.
Please provide an explanation with your answer.
Homework Answers
The marginal rate of technical substitution (MRTS) is an economic theory that illustrates the rate at which one factor must decrease so that the same level of productivity can be maintained when another factor is increased.
In economic theory, a factor price is the unit cost of using a factor of production, such as labor or physical capital. There has been much debate as to what determines factor prices.
At the point of tangancy, the marginal rate of technical substitution (MRTS) between the two factors is equal to the ratio of prices of the two factors at equilibrium. This means that the rate at which the producer is willing to exchange one input for another equals the rate at which the inputs can be exchanged in the market.
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