Unstructured notes on Marginal Rate of Technical Substitution and opportunity cost.

Marginal Rate of Technical Substitution (MRTS):

The rate at which the one factor of production can be substituted for another factor of production, output being constant is called marginal rate of technical substitution. The slope of an isoquant shows the ability of a firm to replace one factor with another while holding the output constant.

Example: if 2 units of factor capital (K) can be replaced by 1 unit of labor (L).

Opportunity Cost:

The sacrifice which you do to achieve something is cost which can be also called as opportunity cost.

Example:

If a boy decides to go to a B-school he has two option that is one is Globsyn college and next is IBA college. (globsyn gives 150 utilities and next is IBA which gives 180 utility) extra 30 utilities is margin cost.