What is the relationship between marginal rate of transformation and opportunity cost?

The marginal rate of transformation (MRT) allows economists to analyze the opportunity costs to produce one extra unit of something. In this case, the opportunity cost is represented in the lost production of another specific good.

What is the difference between marginal rate of technical substitution and marginal rate of substitution?

While the marginal rate of substitution tells us the rate at which a consumer is willing to replace one product with another, the marginal rate of technical substitution tells us the rate at which a producer is willing to switch one input (i.e. factor of production) with another.

What is the difference between marginal opportunity cost and marginal rate of transformation?

The marginal rate of transformation refers to the number of units of a product that must be foregone to produce more of one good. It allows the firm to determine the opportunity cost for producing an additional unit. The opportunity cost represents the lost production of one product.

How do you interpret marginal rate of substitution?

In economics, the marginal rate of substitution (MRS) is the amount of a good that a consumer is willing to consume compared to another good, as long as the new good is equally satisfying.

Why does marginal rate of technical substitution between factors diminish?

The marginal rate of technical substitution diminishes when the producer keeps on substituting one resource of production with another input of production.

What are isoquants and Isocosts?

An isoquant shows all combination of factors that produce a certain output. An isocost show all combinations of factors that cost the same amount. Isocosts and isoquants can show the optimal combination of factors of production to produce the maximum output at minimum cost.

How do you calculate marginal rate of substitution MRS using an indifference curve?

Marginal Rate of Substitution Formula The Marginal Rate of Substitution of Good X for Good Y (MRSxy) = ∆Y/ ∆X (which is just the slope of the indifference curve).