marginal rate of transformation

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The amount by which one output can be increased if another is reduced by a small amount, per unit of the decrease, holding total inputs constant. The marginal rate of transformation can be calculated at the level of the firm, the industry, a country, or the world as a whole. It measures opportunity costs, and is given by the gradient of the production possibility frontier. If the production possibility frontier is defined implicitly by G(K, L) = 0 the marginal rate of transformation is defined by

Subjects: Economics.

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