marginal rate of transformation


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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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For the simple linear technology in (2), the marginal rate of transformation between any two goods indexed by [z.
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Similarly, the marginal cost, which presently equals the minimum wage w, equals the marginal rate of transformation (i.
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When lump-sum taxes are available, the first-best rule for public good production requires that the sum of the marginal rates of substitution be equal to the marginal rate of transformation (e.
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The case for reliance on comparative advantage was well buttressed by theory: a Pareto optimum is achieved when the international marginal rate of transformation equals the domestic marginal rate of transformation.
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Finally, the condition that the marginal rate of substitution in consumption equals the marginal rate of transformation,
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