The marginal rate of transformation (MRT) can be defined as how many units of good x have to stop being produced in order to produce an extra unit of good y, while keeping constant the use of production factors and the technology being used. It involves the relation between the production of different outputs, while maintaining constant the same level of production factors. It can be determined using the following formula:
The MRT is related to the production possibility frontier (PPF). The slope of the curves shows how a reallocation of the production can end with a different bundle of production, using the same quantity of inputs. Two of the most commonly used PPFs are depicted in the adjacent figure.
In the first graph, the MRT will change along the curve.
The second graph, which portrays the case of perfect substitutes output, that is the slope has an angle of 45º with each axis and therefore we have MRT = 1. When considering different substitutes goods, the slope will be different and the MRT can be defined as a fraction, such as 1/2 ,1/3, and so on. For perfect substitutes, the MRT will remain constant.
Video – Marginal rate of transformation: