Question

There is no difference between the law of diminishing marginal returns and the law of diminishing marginal rate of technical substitution. True or False. Explain and offer examples to further illustrate your explanation.

Answer 1

This statement is False. They are different.

Step-by-step explanation:

The law of diminishing marginal returns is different from law of diminishing marginal rate of technical substitution. Diminishing marginal returns is the loss in returns due to excessiveness of the variable input and the diminishing rate of technical substitution is substitution of one input for another initial input.

Example: The law of diminishing marginal returns occur when labor is variable and capital is fixed. Additional labour will increase output until further addition of labour becomes burden on the capital because it is constant.

Example: The law of diminishing marginal rate of technical substitution is when labour keeps being replaced by technological discoveries and the replacement keeps increasing with increase in capital.