Marginal rate of technical substitution

Hey kiddo, do you like puzzles? Imagine there are two employees in a toy factory, one is really good at putting teddy bears together and the other is really skilled at painting them with different colours.

Now, let's say that the factory owner wants to make as many teddy bears as possible, but using only the least amount of paint. To do this, he needs to figure out how he can combine the two workers' skills in the most efficient way possible.

That's where the Marginal Rate of Technical Substitution (MRTS) comes in. It's a fancy way of measuring how much of one worker's skill can replace the other worker's skill in the production process.

So, for example, if the factory owner finds that by slightly reducing the amount of painting used, he can get the teddy bear-making employee to do more of their job instead, we can say that the MRTS between painting and teddy bear-making is relatively high.

On the other hand, if reducing the amount of painting used only has a small impact on how much teddy bear-making gets done, then the MRTS is low.

In summary, the MRTS measures how easily one kind of work can replace another kind of work in the production process in order to maximize output and minimize the use of resources.