This video explains what the marginal rate of transformation is, and shows its relationship with the production possibility frontier. We also analyse how the marginal rate of transformation determines the opportunity cost in production.
The marginal rate of transformation 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.
The marginal rate of transformation is related to the production possibility frontier. 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.
The marginal rate of transformation should not be confused with the marginal rate of substitution or the marginal rate technical substitution.
Learn more by reading the dictionary entry.
- Marginal rate of substitution
- Production possibility frontier
- Marginal rate of technical subsitution