What is the 'Marginal Rate of Technical Substitution'
The marginal rate of technical substitution is the rate at which one factor has to be decreased in order to retain the same level of productivity if another factor is increased. The marginal rate of technical substitution shows the tradeoffs between factors, such as capital and labor, that a firm must make in order to keep output constant. The marginal rate of technical substitution is different than the marginal rate of substitution (MRS). MRTS focuses on producer equilibrium, while MRS focuses on consumer equilibrium.
BREAKING DOWN 'Marginal Rate of Technical Substitution'
The marginal rate of technical substitution is the slope of a graph that has one factor represented on each access. The slope is an isoquant, which is a curve that connects the points of the two inputs when the output is kept the same. For example, the MRTS of a graph that has capital (K) on its Xaxis and labor (L) on its Yaxis is calculated as dL/dK. The shape of the isoquant depends on whether the inputs are perfect substitutes (straight line), complements (Lshaped) or if inputs are not perfect substitutes (curve).
A decline in the MRTS along an isoquant is called a diminishing marginal rate of technical substitution. For example, a firm plots out a graph of capital and labor. Moving from point A to point B means reducing labor by 1 to increase capital by 4. To move from point B to point C means reducing labor by 1 to increase capital by 2. If MRTS = dK/dL, point A to point B has a MRTS of 4, and from point B to point C has a MRTS of 2.

Substitute
A product or service that a consumer sees as comparable. If prices ... 
Isoquant Curve
A graph of all possible combinations of inputs that result in ... 
Marginal Rate of Substitution
The amount of a good that a consumer is willing to give up for ... 
SameDay Substitution
An offsetting change in a margin account, made over the trading ... 
Substitute Check
A paper reproduction of a check that is copied electronically. ... 
Currency Substitution
The use of a foreign currency in transactions in place of the ...

Term
What's a Substitute?
A substitute is a good that satisfies the same needs as another. 
Economics
Understanding the Substitution Effect
The substitution effect is an economic term used to describe consumer behavior relative to price or income changes. 
Professionals
Components of Marginal Product and Marginal Revenue
CFA Level 1  Components of Marginal Product and Marginal Revenue 
Analyzing Google's Threat of Substitutes
Google, now owned by new parent company Alphabet, Inc. (NASDAQ: GOOGL), dominates traditional Web search. In the United States, 64.4% of all search traffic in March 2015 was performed through ... 
Professionals
Answers
Answers 
Economics
Calculating the Marginal Rate of Substitution
The marginal rate of substitution determines how much of one good a consumer will give up to obtain extra units of another good. 
Retirement
Estate Planning: Will Substitutes
by Cathy Pareto, CFP®, AIF® (Contact Author  Biography) A will substitute is a technique that allows you to transfer property at your death to a beneficiary outside the probate process. ... 
Professionals
Marginal and Average Total Cost Curves
Marginal Cost Curve and the Average Total Cost Curve. Learn the different types of economic cost curves and the law of diminishing returns. 
Options & Futures
Margin Trading: Conclusion
Here's the bottom line on margin trading: You are more likely to lose lots of money (or make lots of money) when you invest on margin. Now let's recap other key points in this tutorial: ... 
Economics
What Is Supply?
Supply is the amount of goods a producer is willing to produce at a given price, and is one of the most basic concepts in economics.

Should a small business test the substitution effect on its products before launch?
Explore the substitution effect and find out how small businesses may evaluate how this principle impacts their own products. ... Read Answer >> 
How do you calculate the income effect distinctly from the price effect?
Learn more about how the income and substitution effects operate in economics. Find out how to separate either of these while ... Read Answer >> 
Is the substitution effect negative for consumers?
Explore whether the substitution effect is positive or negative for consumers as well as for retailers, manufacturers and ... Read Answer >> 
What's the difference between the substitution effect and the income effect?
Learn the difference between the income effect and the substitution effect in terms of spending money. Predict which direction ... Read Answer >> 
What's the difference between the substitution effect and price effect?
Learn how the increase in an item's price affects consumer demand. Explore the differences between the substitution and price ... Read Answer >> 
What's the difference between the income effect and the substitution effect?
Learn more about the income effect and substitution effect in economics. Find out how these two principles impact consumer ... Read Answer >>