The below mentioned article provides an overview on the Principle of Marginal Rate of Technical Substitution (MRTS).

The principle of marginal rate of technical substitution (MRTS or MRS) is based on the production function where two factors can be substituted in variable proportions in such a way as to produce a constant level of output.

Salvatore defines MRTS thus :

“The marginal rate of technical substitution is the amount of an output that a firm can give up by increasing the amount of the other input by one unit and still remain on the same isoquant.”

The marginal rate of technical substitution between two factors С (capital) and L (labour) MRTS is the rate at which L can be substituted for С in the production of good X without changing the quantity of output. As we move along an isoquant downward to the right, each point on it represents the substitution of labour for capital.

MRTS is the loss of certain units of capital which will just be compensated for by additional units of labour at that point. In other words, the marginal rate of technical substitution of labour for capital is the slope or gradient of the isoquant at a point. Accordingly, slope = MRTS, LC = – ∆С/∆ L. This can be understood with the aid of the isoquant schedule, in Table 2

The above table shows that in the second combination to keep to output constant at 100 units, the reduction of 3 units of capital requires the addition of 5 units of labour, MRTSLC = 3:5. In the third combination, the loss of 2 units of capital is compensated for by 5 more units of labour, and so on.