marginal rate of transformation


Also found in: Acronyms.

marginal rate of transformation

a ratio of the MARGINAL COSTS of producing two products. It is measured by the slope of the PRODUCTION-POSSIBILITY BOUNDARY, which indicates the rate at which the production of one product can be replaced by the production of the other as a result of the reallocation of inputs.

For an economy, the optimum composition of national output is achieved when the marginal rate of transformation of the goods produced equals the ratio of their prices. See PARETO OPTIMALITY.

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