When labour is plotted on X-axis and capital is plotted on Y-axis and an iso-quant is prepared, then which of the following statements is/are false ?

(a) Marginal rate of technical substitution of labour for capital is equal to the slope of the iso-quant.

(b) Marginal rate of technical substitution of labour for capital is equal to change in the units of capital divided by the change in the units of labour.

(c) Marginal rate of technical substitution of labour for capital is the ratio of marginal productivity of capital to marginal productivity of labour.

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UGC Paper 2: Commerce July 2018
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  1. (a) and (b) statements
  2. Only (c) statement
  3. Only (a) statement
  4. Only (b) statement

Answer (Detailed Solution Below)

Option 2 : Only (c) statement
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Detailed Solution

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The marginal rate of technical substitution:

  1. The marginal rate of technical substitution (MRTS) is an economic theory that illustrates the rate at which one factor must decrease so that the same level of productivity can be maintained when another factor is increased. 
  2. The marginal rate of technical substitution shows the rate at which you can substitute one input, such as labor, for another input, such as capital, without changing the level of resulting output.

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  1. The MRTS is equal to the slope of isoquants.
  2. The marginal rate of technical substitution of labor for capital is equal to change in the units of capital divided by the change in the units of labor. 
    • ​​MRTS = - ΔK / Δ, Where K = Capital and L = Labor. 
  3. The marginal rate of technical substitution of labor for capital is the ratio of marginal productivity of labor to the marginal productivity of capital.
    •  MRTS = MP/ MPK .

Thus, statement C is incorrect.

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