The Marginal Rate of Technical Substitution in Production Is Analogous

question 77

Multiple Choice

The marginal rate of technical substitution in production is analogous to the marginal rate of substitution for the consumer's optimization problem in that

• A)the slope of the consumer's indifference curve is the opposite of the ratios of the marginal utilities of the two goods, whereas the slope of the production isoquant is the opposite of the ratio of the marginal product of labor relative to the marginal product of capital.
• B)the slope of the consumer's indifference curve is equal to the ratio of the marginal utilities of the two goods, whereas the slope of the production isoquant is the opposite of the ratio of the marginal product of labor relative to the marginal product of capital.
• C)the slope is equal in both instances.
• D)they are calculated by subtracting the price ratio from the output level.

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Definitions:

Discount Rate

A rate used to convert future cash flows into their present value, fundamental in the assessment of investment attractiveness.

IRR

Internal Rate of Return (IRR) is a financial measure used to evaluate the profitability of potential investments by calculating the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equals zero.

Initial Cost

The initial outlay or expenditure associated with the purchase or acquisition of an asset, not including ongoing operating or maintenance costs.

Revenue

The total amount of income generated by the sale of goods or services related to a company's primary operations.