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If the production function is F(K,L)=A∗K0.4L0.6 then what is the marginal rate of technical substitution

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Isocost and Isoprofit Curve Analysis

An isocost curve in the production theory that is a crucial part of economics depicts different combinations of factor inputs at a given market cost. In other words, this shows all the combinations of production factors that cost the same for the firm to employ. Usually, this can be depicted as a downward sloping straight line when the firms act as the price-takers in the factor markets. The slope of this mainly depicts the relative prices of different production factors.

Question

If the production function is F(K,L)=A∗K0.4L0.6 then what is the marginal rate of technical substitution

Definition Definition Rate at which one factor of production is decreased in order to maintain the same level of output when another factor of production is increased. MRTS allows for the substitution between factors of production: labor (L) and capital (K) in order to maintain a given level of output.

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