Assuming convex producer choice sets, the (marginal) technical rate of substitution is equal (in absolute value) to the ratio of input prices at any profit maximizing production plan.

Question

Quizplus · Accepted Answer

This statement is a basic result from microeconomic theory, known as the "equal marginal principle." If a producer is maximizing profits using a given production plan, then the ratio of input prices must equal the ratio of the marginal products (i.e. the marginal rate of technical substitution) at the optimal point. This can be shown mathematically using the Lagrangian method or other techniques. Therefore, the statement is true.

Assuming Convex Producer Choice Sets, the (Marginal) Technical Rate of Substitution