It is used for production functions where one variable can be substituted with others in such a way that the overall units produced remain the same.
The value of MRTS declines as labour is substituted for capital which is also called the principle of diminishing marginal rate of technical substitution.
The factor shows the loss of certain units of capital can be compensated by additional units of work at any point but when the technical method of production changes the output can be the same with fewer inputs.
This can be equal to the ratio of the marginal product of labour to the marginal product of capital.
The term indicates an isoquant where the curve gets flat as it approaches the x-axis. Isoquants are similar to indifference curves in examining consumer behaviour as it represents all the factors and combinations capable of producing the same level of output. It can be shown as –
MRTS = Change in Capital / Change in Labour
It shows the combination of different factors like labour, cash, commodities cost, the market value of goods manufactured and others should be able to get the same yield.