Marginal Rate of Technical Substitution

The Marginal Rate of Technical Substitution (MRTS) measures how much of one input (like labor) can be reduced while still maintaining the same level of output if you increase another input (like capital). It reflects the trade-off between inputs in production. For example, if you can substitute some machinery for workers without changing how much you produce, the MRTS quantifies how much machinery replaces workers at the margin. Essentially, it indicates the rate at which one input can be substituted for another efficiently, helping firms optimize their resource use in production processes.