Marginal rate of technical substitution in the theory of production is similar to the concept of marginal rate of substituent to in the indifference curve analysis of consumer demand. Marginal rate of technical substitution in the indifference curve analysis of consumer demand. Marginal rate of technical of labour for capital may be defined as the number of unties of capital which can be replaced by one unit of labour the level of output remaining unchanged.

Each of the factor combinations A, B, C, D, and E yields the same level of output. Moving down from combination A to combination B, 4 units of capital are substituted by 1 unit of labor in the production process without any change in the level of output. Therefore marginal rate of technical substitution of labour for capital is 4 at this stage. Switching from input combination B to input combination C involves the replacement of 3 unties of capital by an additional unties of labour output remaining the same. Thus the marginal rate of technical substitution is now 3. Likewise marginal rate of technical substitution of labor for capital between factor combinations C and D is 2, and between factor combinations D and E it is 1.

The marginal rate of technical substitution at a point on an Isoquants (an equal product curve) can be known form the slope of the Isoquants at that point. Consider a small movement down the equal product curve from G to H in where small amounts of capital say ΔK / ΔL. Thus marginal rate of technical substitution of about for capital = slope = ΔK/ ΔL.

Slope of the Isoquants at a point and therefore the marginal rate of technical substitution (MRTS) between factors can also be known by the slope of the tangent drawn on the Isoquants at that point.

An important point to be noted about the marginal rate of technical substitution is that it is equal to the ratio of the marginal physical products of the two factors. Since by definition output remains constant on an Isoquants the loss in physical output from a small reduce to in capital will be equal to the gain in physical output form a small increment in labour. The loss in output is equal to the marginal physical product of capital (MP) multiplied by the amount of reduction in capital. The gain in output is equal to the marginal physical product of labour (MP) multiplied by the increment in labour.