Table 7-3 shows the combinations of labor and capital required to produce various level of output.
Table 7-3
-Refer to Table 7-3.If the firm is currently producing 26 units of output using three units of labor,what is the marginal rate of technical substitution of labor for capital at this point?
A)-1
B)-2
C)-3
D)-4

Question

Table 7-3 shows the combinations of labor and capital required to produce various level of output.
Table 7-3 
-Refer to Table 7-3.If the firm is currently producing 26 units of output using three units of labor,what is the marginal rate of technical substitution of labor for capital at this point?
A)-1 
B)-2 
C)-3 
D)-4

Quizplus · Accepted Answer

The marginal rate of technical substitution (MRTS) of labor for capital can be calculated as the ratio of the marginal product of capital to the marginal product of labor. At the current production level of 26 units and using three units of labor, the marginal product of labor is 5 units (the increase in output from using an additional unit of labor) and the marginal product of capital is 13 units (the increase in output from using an additional unit of capital). Therefore, the MRTS of labor for capital is:

MRTS = (Marginal product of capital) / (Marginal product of labor)
= 13 / 5
= 2.6

Therefore, the best choice is option C, which is -3 (the only answer choice close to 2.6).

Table 7-3 Shows the Combinations of Labor and Capital Required