The below mentioned article provides an overview on the Principle of Marginal Rate of Technical Substitution (MRTS). The principle of marginal rate of technical substitution (MRTS or MRS) is based on the production function where two factors can be substituted in variable proportions in such a way as to produce a constant level of output. Salvatore defines MRTS thus : [...]
Determination of Normal Price Under Laws of Returns! Normal price is influenced by laws of returns. Price is influenced through cost of production which may be increasing if there are dividing returns, decreasing if increasing returns or retains constant if constant returns. A. Normal Price and Law of Increasing Returns (Diminishing Costs): Law of increasing returns in also known as [...]
The relationship between average cost and marginal cost can also be studied in the context of laws of return. It can be explained as under: (i) Law of Increasing Returns or the Law of Diminishing Costs: When a firm produces under the law of increasing returns, it means that as it employs more and more factors of production, its output [...]