What is the marginal rate of transformation (MRT)? The MRT is A. the efficient a

Question

What is the marginal rate of transformation (MRT)?

The MRT is

A. the efficient allocation of two inputs between two production functionstwo inputs between two production functions.

B. the amount of one good that must be given up to produce one additional unit of a second good.

C. the amount by which one input can be reduced when one extra unit of another input is used so that output remains constant.

D. the combinations of two goods that can be produced with fixed quantities of inputs.

E. a consumer's willingness to pay for an additional unit of one good by consuming less of another good.

Explain why the MRT of one good for another is equal to the ratio of marginal costs of producing the two goods.

The MRT equals the ratio of marginal costs of producing two goods because

A. along the production possibilities frontier, the ratio of marginal costs equals the willingness of consumers to trade one good for an additional unit of another good.

B. along the production possibilities frontier, the total cost of producing one good is reduced by the same amount that the cost of producing another good increases.

C. along an isoquantan, the opportunity cost of producing more of one good is producing less of the other good.

D. along the production possibilities frontier, the ratio of marginal costs equals the ratio of the prices of the two goods.

E. along the production possibilities frontier, the total cost of production is decreasing.

Explanation / Answer

(1) MRT is:

Option (B).

Note that option (D) refers to the Production Possibility Frontier (PPF), not MRT which is the slope of PPF.

(2) MRT = Ratio of marginal costs because:

Option (A).

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