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Marginal Rate of Transformation


Definition

If the transformation function F is differentiable, and if F(y) = 0,
(Note: y is a production vector), then the Marginal rate of transformation (MRT) between good l and good k at :

Holding fixed.


Note: are goods in production vector, they may and may not be inputs.


Interpretation
How much the (net) output of good k can increase if the firm decreases the (net) output of good l by one unit.


(Image the graph where l is on horizontal axis, k is on vertical axis.)


Slope of tangent line of transformation frontier is
(Good 1 on horizontal axis, good 2 on vertical axis)
(slope is )


The MRT to two inputs is the marginal rate of technical substitution (MRTS)


Note


Example