MRT is the rate at which the units of one good have to be sacrificed to produce one more unit of the other good in a two goods economy Suppose an economy produces only two goods X and Y. Further suppose that by employing these resources fully and efficiently, the economy produces 1X + 10Y. If the economy decides to produce 2X, it has to cut down production of Y by 2 units. Then 2Y is the opportunity cost of producing 1X. Then 2Y:1X is the MRT.
What is ‘Marginal Rate of transformation’? Explain with the help of an example.
Answers
Raju
MRT is the rate at which the units of one good have to be sacrificed to produce one more unit of the other good in a two goods economy Suppose an economy produces only two goods X and Y. Further suppose that by employing these resources fully and efficiently, the economy produces 1X + 10Y. If the economy decides to produce 2X, it has to cut down production of Y by 2 units. Then 2Y is the opportunity cost of producing 1X. Then 2Y:1X is the MRT.