What is the 'Marginal Rate Of Transformation'
The marginal rate of transformation (MRT) is the rate at which one good must be sacrificed in order to produce a single extra unit (or marginal unit) of another good, assuming that both goods require the same scarce inputs.
Marginal rate of transformation can also be referred to as the opportunity cost.
BREAKING DOWN 'Marginal Rate Of Transformation'
The marginal rate of transformation is tied to the production possibility frontier (PPF), which displays the output potential for two goods using the same resources. To produce more of one good means producing less of the other because the resources are efficiently allocated. In other words, resources used to produce one good are diverted from other goods, which means less of the other goods will be produced. This tradeoff is measured by the marginal rate of transformation.
The marginal rate of transformation (MRT) can be defined as the number of units of good x that will be foregone in order to produce an extra unit of good y, while keeping constant the use of production factors and the technology being used. MRT is the absolute value of the slope of the production possibilities frontier. For each point on the frontier (which is displayed as a curved line), there is a different marginal rate of transformation, based on the economics of producing each product individually.
The marginal rate of transformation allows economists to analyze the opportunity costs to produce one extra unit of something; in this case the opportunity cost is represented in the lost production of another specific good. Generally speaking, the opportunity cost rises (as does the absolute value of the MRT) as one moves along (down) the PPF; as more of one good is produced, the opportunity cost (in units) of the other good increases.
Determining the Marginal Rate of Transformation
MRT can be determined using the following formula:
The formula indicates the rate at which a small amount of x can be foregone for a small amount of y. The rate is the opportunity cost of a unit of each good in terms of another. As the number of units of x relative to y changes, the rate of transformation may also change. If baking one less cake frees up enough resources to bake three more loaves of bread, the rate of transformation is 3 to 1 at the margin. For perfect substitutes goods, the MRT will equal 1 and remain constant.
As another example, consider a student who faces a tradeoff which involves giving up some free time to get better grades in class. The MRT is the rate at which the student’s grade increases as free time is given up, which is given by the absolute value of the slope of the production possibility frontier curve.
MRT vs. MRS
While the marginal rate of transformation is similar to the marginal rate of substitution (MRS), these two concepts are not the same. The marginal rate of substitution (MRS) focuses on demand, whereby, MRT focuses on supply. The marginal rate of substitution highlights how many units of x would be considered compensation for one less unit of y, by a given consumer group. For example, a consumer that prefers oranges to apples, may only find equal satisfaction if she receives three apples instead of one orange.

Marginal Rate of Substitution
The amount of a good that a consumer is willing to give up for ... 
Margin
1. Borrowed money that is used to purchase securities. This practice ... 
Production Possibility Frontier ...
A curve depicting all maximum output possibilities for two or ... 
Substitute
A product or service that a consumer sees as comparable. If prices ... 
Operating Margin
A ratio used to measure a company's pricing strategy and operating ... 
Fisher Transform
The Fisher Transform is a technical indicator created by J.F. ...

Trading
Margin Trading
Find out what margin is, how margin calls work, the advantages of leverage and why using margin can be risky. 
Managing Wealth
What's a Good Profit Margin for a Mature Business?
How to determine if the amount you clear dovetails with the competition. 
Investing
The Production Possibility Frontier (PPF)
A production possibility frontier (PPF) is a range of answers to the question, “What is our maximum production capacity?” 
Insights
A Practical Look At Microeconomics
Learn how individual decisionmaking turns the gears of our economy. 
Investing
The Difference Between Gross and Net Profit Margin
To calculate gross profit margin, subtract the cost of goods sold from a company’s revenue; then divide by revenue.

Is the production possibility frontier used by businesses to calculate their production ...
Understand how businesses use the production possibility frontier (PPF) to project business goals and make important decisions ... Read Answer >> 
How can you find the demand function from the utility function?
Learn how the utility function can be used to derive the demand function, and how both of these concepts relate to utility ... Read Answer >> 
How does a company make a spending decision using marginal analysis?
Understand how a company uses marginal analysis in its spending decisions. Learn the benefits of marginal revenue and marginal ... Read Answer >> 
What's the difference between profit margin and operating margin?
Learn the differences between a company's gross profit margin, net profit margin and operating margin, and what each profitability ... Read Answer >> 
How do I calculate the production possibility frontier in Excel?
Learn how to create production possibility frontier curves in Microsoft Excel and understand the importance of production ... Read Answer >> 
What is the difference between gross margin and operating margin?
Understand the difference between gross margin and operating margin in relation to evaluating a company's overall profitability ... Read Answer >>