If a firm hires one worker and eliminates four units of capi

If a firm hires one worker and eliminates four units of capital, and hires one more worker and replaces three more units of capital, keeping output constant, then

Question 13 options:

A)

B)

C)

D)

Solution

C) The firm is experiencing diminishing Marginal Rate of Technical Substitution.

The above table showing operation of the diminishing MRTS

MRTS is defined as the rate at one factor substituted for another factor while holding another factor constant.

The tables show in order to produce more units X commodity by employing additional units of labor units through reducing the capital units.

It indicates that all combination of production A, B, C, D, E. yielding the same level of output through operation of diminishing MRTS.